424B4 1 h69756b4e424b4.htm 424B4 e424b4
Table of Contents

Filed pursuant to Rule 424(b)(4)
Registration No. 333-165662
PROSPECTUS
 
(OXFORD LOGO)
Oxford Resource Partners, LP
8,750,000 Common Units
Representing Limited Partner Interests
 
 
This is the initial public offering of our common units. We are offering 8,750,000 common units in this offering. No public market currently exists for our common units.
 
Our common units have been approved for listing on the New York Stock Exchange under the symbol “OXF.”
 
Investing in our common units involves risks. See “Risk Factors” beginning on page 23 of this prospectus.
 
These risks include the following:
 
•     We may not have sufficient cash to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves by our general partner and the payment of costs and expenses, including reimbursement of expenses to our general partner.
 
•     We must generate approximately $36.7 million of available cash from operating surplus to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. For the year ended December 31, 2009 and the twelve months ended March 31, 2010, we generated only $16.1 million and $10.8 million of available cash from operating surplus, respectively, and would not have been able to pay the full minimum quarterly distribution on our common units or any distributions on our subordinated units during those periods. In addition, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering.
 
•     Our general partner and its affiliates have conflicts of interest with us, and their limited fiduciary duties to our unitholders may permit them to favor their own interests to the detriment of our unitholders.
 
•     Decreases in demand for electricity and changes in coal consumption patterns of U.S. electric power generators could adversely affect our business.
 
•     New regulatory requirements limiting greenhouse gas emissions could adversely affect coal-fired power generation and reduce the demand for coal as a fuel source, which could cause the price and quantity of the coal we sell to decline materially.
 
•     Existing and future regulatory requirements relating to sulfur dioxide and other air emissions could affect our customers and could reduce the demand for the high-sulfur coal we produce and cause coal prices and sales of our high-sulfur coal to decline materially.
 
•     Competition within the coal industry may materially and adversely affect our ability to sell coal at an acceptable price.
 
•     We depend on a limited number of customers for a significant portion of our revenues, and the loss of, or significant reduction in, purchases by any of them could adversely affect our results of operations and cash available for distribution to our unitholders.
 
•     Our inability to acquire additional coal reserves that are economically recoverable may have a material adverse effect on our future profitability.
 
•     Our unitholders have limited voting rights and are not entitled to elect our general partner or its directors or initially to remove our general partner without its consent.
 
•     Our unitholders’ share of our income will be taxable to them for U.S. federal income tax purposes even if they do not receive any cash distributions from us.
 
                 
    Per Common Unit   Total
 
Public Offering Price
  $ 18.5000     $ 161,875,000  
Underwriting Discount(1)
  $ 1.2025     $ 10,521,875  
Proceeds to us (before expenses)
  $ 17.2975     $ 151,353,125  
 
 
(1) Excludes a structuring fee equal to an aggregate of 0.5% of the gross proceeds from this offering payable to Barclays Capital Inc. and Citigroup Global Markets Inc.
 
We have granted the underwriters a 30-day option to purchase up to an additional 1,312,500 common units on the same terms and conditions set forth above if the underwriters sell more than 8,750,000 common units in this offering.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
Barclays Capital, on behalf of the underwriters, expects to deliver the common units on or about July 19, 2010.
 
 
 
Barclays Capital Citi
 
 
Credit Suisse Raymond James Wells Fargo Securities UBS Investment Bank
 
Prospectus dated July 13, 2010


Table of Contents


Table of Contents

 
TABLE OF CONTENTS
 
         
    Page
 
    1  
    1  
    3  
    3  
    4  
    5  
    5  
    6  
    6  
    10  
    11  
    12  
    12  
    12  
    14  
    20  
    23  
    23  
    23  
We must generate approximately $36.7 million of available cash from operating surplus to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. For the year ended December 31, 2009 and the twelve months ended March 31, 2010, we generated only $16.1 million and $10.8 million of available cash from operating surplus, respectively, and would not have been able to pay the full minimum quarterly distribution on our common units or any distributions on our subordinated units during those periods. In addition, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering
    23  
    24  
    25  
    25  
    26  
    26  
    27  
    27  


i


Table of Contents

         
    Page
 
    27  
    28  
    28  
    29  
    29  
    30  
    30  
    30  
    31  
    31  
    32  
    32  
    32  
    32  
    33  
    33  
    34  
    34  
    34  
    34  


ii


Table of Contents

         
    Page
 
    35  
    35  
    35  
    36  
    37  
    38  
    38  
    38  
    38  
    39  
    39  
    40  
    40  
    41  
    41  
    41  
    41  
    42  
    42  
    42  
    42  
    43  
    43  


iii


Table of Contents

         
    Page
 
    43  
    43  
    44  
    44  
    44  
    44  
    45  
    45  
    46  
    48  
    49  
    50  
    50  
    52  
    53  
    53  
    58  
    63  
    63  
    64  
    67  
    69  
    70  
    70  
    72  
    73  
    73  
    76  
    80  
    80  
    81  
    83  
    84  


iv


Table of Contents

         
    Page
 
    85  
    93  
    97  
    101  
    101  
    102  
    102  
    102  
    103  
    104  
    105  
    106  
    108  
    109  
    110  
    110  
    111  
    111  
    113  
    114  
    115  
    116  
    116  
    123  
    125  
    126  
    126  
    127  
    129  
    129  
    129  
    130  
    140  
    141  
    141  
    142  
    146  
    155  
    156  
    156  
    156  
    156  
    157  
    159  
    159  
    159  
    160  


v


Table of Contents

         
    Page
 
    161  
    163  
    163  
    164  
    164  
    164  
    165  
    165  
    166  
    166  
    167  
    167  
    172  
    175  
    175  
    175  
    175  
    177  
    177  
    177  
    177  
    177  
    178  
    179  
    180  
    182  
    182  
    183  
    183  
    184  
    184  
    184  
    184  
    185  
    185  
    186  
    186  
    186  
    187  
    187  
    187  
    188  
    189  
    190  
    190  
    192  
    192  


vi


Table of Contents

         
    Page
 
    197  
    201  
    203  
    204  
    205  
    207  
    208  
    209  
    211  
    211  
    212  
    212  
    213  
    213  
    213  
    213  
    214  
    214  
    214  
    214  
    215  
    215  
    218  
    218  
    218  
    219  
    F-1  
    A-1  
    B-1  
 
You should rely only on the information contained in this prospectus, any free writing prospectus prepared by or on behalf of us or any other information to which we have referred you in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of common units means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy the common units in any circumstances under which the offer or solicitation is unlawful.


vii


Table of Contents

 
SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the historical and pro forma consolidated financial statements and the notes to those financial statements, before purchasing our common units. The information presented in this prospectus assumes that the underwriters’ option to purchase additional common units is not exercised unless otherwise noted. You should read “Risk Factors” beginning on page 23 for information about important risks that you should consider before purchasing our common units.
 
Market and industry data and certain other statistical data used throughout this prospectus are based on independent industry publications, government publications and other published independent sources. In this prospectus, we refer to information regarding the coal industry in the United States and internationally that was obtained from the U.S. Department of Energy’s Energy Information Administration, or the EIA, John T. Boyd Company and the U.S. Mine Safety and Health Administration, or MSHA. These organizations are not affiliated with us.
 
References in this prospectus to “Oxford Resource Partners, LP,” “we,” “our,” “us” or like terms refer to Oxford Resource Partners, LP and its subsidiaries, including our wholly owned subsidiary, Oxford Mining Company, LLC, which is also our accounting predecessor. References to “Oxford Resources GP” or “our general partner” refer to Oxford Resources GP, LLC. We have included a glossary of some of the terms used in this prospectus as Appendix B.
 
Oxford Resource Partners, LP
 
We are a low cost producer of high value steam coal, and we are the largest producer of surface mined coal in Ohio. We focus on acquiring steam coal reserves that we can efficiently mine with our modern, large scale equipment. Our reserves and operations are strategically located in Northern Appalachia and the Illinois Basin to serve our primary market area of Illinois, Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. We market our coal primarily to large utilities with coal-fired, base-load scrubbed power plants under long-term coal sales contracts. We believe that we will experience increased demand for our high-sulfur coal from power plants that have or will install scrubbers. Currently, there is over 54,500 megawatts of scrubbed base-load electric generating capacity in our primary market area and plans have been announced to add over 18,400 megawatts of additional scrubbed capacity by the end of 2017. We also believe that we will experience increased demand for our coal from power plants that use coal from Central Appalachia as production in that region continues to decline.
 
We currently have 17 active surface mines that are managed as eight mining complexes. During the first quarter of 2010, our largest mine represented 12.6% of our coal production. This diversity reduces the risk that operational issues at any one mine will have a material impact on our business or our results of operations. Consistent coal quality across many of our mines and the mobility of our equipment fleet allows us to reliably serve our customers from multiple mining complexes while optimizing our mining plan. Our operations also include two river terminals, strategically located in eastern Ohio and western Kentucky, that further enhance our ability to supply coal to our customers with river access from multiple mines.
 
During 2009 and the first quarter of 2010, we produced 5.8 million tons and 1.8 million tons of coal, respectively. During each of the last two quarters, we produced 0.4 million tons from the reserves we acquired in western Kentucky from Phoenix Coal on September 30, 2009. Based on our coal production for the first quarter of 2010, our annualized coal production for 2010 would be 7.2 million tons. During 2009 and the first quarter of 2010, we sold 6.3 million tons and 2.0 million tons of coal, respectively, including 0.5 million tons and 0.3 million tons of purchased coal, respectively. We currently have long-term coal sales contracts in place for 2010, 2011, 2012 and 2013 that represent 97.6%, 101.5%, 81.0% and 50.7%, respectively, of our 2010 estimated coal sales of 8.2 million tons. Members of our senior management team have long-standing relationships within our industry, and we believe those relationships will allow us to continue to obtain long-term contracts for our coal production that will continue to provide us with a reliable and stable revenue base.


1


Table of Contents

 
As of December 31, 2009, we controlled 91.6 million tons of proven and probable coal reserves, of which 68.6 million tons were associated with our surface mining operations and the remaining 23.0 million tons consisted of underground coal reserves that we have subleased to a third party in exchange for an overriding royalty. Historically, we have been successful at replacing the reserves depleted by our annual production and growing our reserve base by acquiring reserves with low operational, geologic and regulatory risks and that were located near our mining operations or that otherwise had the potential to serve our primary market area. Over the last five years, we have produced 23.3 million tons of coal and acquired 52.6 million tons of proven and probable coal reserves, including 24.6 million tons of coal reserves that we acquired in connection with the Phoenix Coal acquisition. We believe that our existing relationships with owners of large reserve blocks and our position as the largest producer of surface mined coal in Ohio will allow us to continue to acquire reserves in the future.
 
For the year ended December 31, 2009 and the first quarter of 2010, we generated revenues of approximately $293.8 million and $88.1 million, respectively, net income (loss) attributable to our unitholders of approximately $23.5 million and $(0.3) million, respectively, and Adjusted EBITDA of approximately $50.8 million and $10.0 million, respectively. Please read “Selected Historical and Pro Forma Consolidated Financial and Operating Data” for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss) attributable to our unitholders. The following table summarizes our mining complexes, our coal production for the year ended December 31, 2009 and the first quarter of 2010 and our coal reserves as of December 31, 2009:
 
                                                             
            As of December 31, 2009
    Production for
  Production for
  Total
                   
    the Year Ended
  the Quarter
  Proven &
          Average
  Average
  Primary
    December 31,
  Ended
  Probable
  Proven
  Probable
  Heat
  Sulfur
  Transportation
Mining Complexes   2009   March 31, 2010   Reserves(1)   Reserves(1)   Reserves(1)   Value   Content   Methods
    (in million tons)           (Btu/lb)   (%)    
 
Surface Mining Operations:
                                                           
Northern Appalachia (principally Ohio)
                                                           
Cadiz
    1.1       0.3       12.4       12.2       0.2       11,520       3.3     Barge, Rail
Tuscarawas County
    0.9       0.3       8.8       8.8       0.0       11,570       3.7     Truck
Belmont County
    1.3       0.3       6.6       6.3       0.3       11,510       3.7     Barge
Plainfield
    0.5       0.1       6.4       6.4       0.0       11,350       4.4     Truck
New Lexington
    0.6       0.1       4.9       4.0       0.9       11,260       4.0     Rail
Harrison(2)
    0.7       0.2       2.8       2.8       0.0       12,040       1.8     Barge, Rail, Truck
Noble County
    0.3       0.1       2.5       2.4       0.1       11,230       4.7     Barge, Truck
Illinois Basin (Kentucky)
                                                           
Muhlenberg County
    0.4 (3)     0.4       24.2       23.5       0.7       11,295       3.6     Barge, Truck
                                                             
Total Surface Mining Operations
    5.8       1.8       68.6       66.4       2.2                      
                                                             
Underground Coal Reserves:
                                                           
Northern Appalachia (Ohio)
                                                           
Tusky(4)
                    23.0       18.6       4.4       12,900       2.1      
                                                             
Total Underground Coal Reserves
                    23.0       18.6       4.4                      
                                                             
Total
                    91.6       85.0       6.6                      
                                                             
 
 
(1) Reported as recoverable coal reserves, which is the portion of the coal that could be economically and legally extracted or produced at the time of the reserve determination, taking into account mining recovery and preparation plant yield. For definitions of proven coal reserves, probable coal reserves and recoverable coal reserves, please read “Business — Coal Reserves.”
 
(2) The Harrison mining complex is owned by Harrison Resources, LLC, our joint venture with CONSOL Energy, Inc. We own 51% of Harrison Resources and CONSOL Energy owns the remaining 49% through one of its subsidiaries. Because the results of operations of Harrison Resources are included in our


2


Table of Contents

consolidated financial statements for the year ended December 31, 2009 and the first quarter of 2010 as required by U.S. generally accepted accounting principles, or GAAP, coal production and proven and probable coal reserves attributable to the Harrison mining complex are presented on a gross basis assuming we owned 100% of Harrison Resources. Please read “Business — Mining Operations — Northern Appalachia — Harrison Mining Complex.”
 
(3) Acquired from Phoenix Coal on September 30, 2009. As a result, production data for 2009 represents production from the date of acquisition through December 31, 2009.
 
(4) Please read “Business — Coal Reserves — Underground Coal Reserves” for more information about our underground coal reserves at the Tusky mining complex, which we have subleased to a third party mining company in exchange for an overriding royalty. We received royalty payments on 0.6 million tons and 0.1 million tons of coal produced from the Tusky mining complex during 2009 and the first quarter of 2010, respectively.
 
Recent Developments
 
On June 22, 2010, our 51% owned subsidiary, Harrison Resources, entered into an agreement with CONSOL to purchase 3.4 million tons of coal reserves located near the Harrison mining complex for a purchase price currently estimated at approximately $17.0 million. A down payment of $850,000 is due at closing, with the balance of the purchase price to be funded by a non-interest bearing promissory note to be issued at the closing by Harrison Resources to CONSOL. Payments on the promissory note will not begin until the reserves are permitted, which is currently expected to occur in late 2011 or early 2012, and are payable thereafter in three annual installments of one-third, one-third and one-sixth of the principal amount, with the remainder payable as a royalty stream on certain excess coal tonnage produced from the reserves. The closing of this purchase is expected to occur on or before July 31, 2010.
 
Business Strategies
 
Our primary business objective is to maintain and, over time, increase our cash available for distribution by executing the following strategies:
 
  •     Increasing coal sales to large utilities with coal-fired, base-load scrubbed power plants in our primary market area.  In 2009, approximately 69% of the total electricity generated in our primary market area was generated by coal-fired power plants, compared to approximately 38% for the rest of the United States. We intend to continue to focus on marketing coal to large utilities with coal-fired, base-load scrubbed power plants in our primary market area of Illinois, Indiana, Kentucky, Ohio, Pennsylvania and West Virginia.
 
  •     Maximizing profitability by maintaining highly efficient, diverse and low cost surface mining operations.  We intend to focus on lowering costs and improving the productivity of our operations. We believe our focus on efficient surface mining practices results in our cash costs being among the lowest of our peers in Northern Appalachia, which we believe will allow us to compete effectively, especially during periods of declining coal prices. We are in the process of implementing the same mining practices that we currently use in Ohio at the mines that we recently acquired as a part of the Phoenix Coal acquisition.
 
  •     Generating stable revenue by entering into long-term coal sales contracts.  We intend to continue to enter into long-term coal sales contracts for substantially all of our annual coal production, which will reduce our exposure to fluctuations in market prices.
 
  •     Continuing to grow our reserve base and production capacity.  We intend to continue to grow our reserve base by acquiring reserves with low operational, geologic and regulatory risks that we can mine economically and that are located near our mining operations or otherwise have the potential to serve our primary market area. We intend to continue to grow our production capacity by expanding our fleet of large scale equipment and opening new mines as our sales commitments increase over


3


Table of Contents

  time. Please read “Cash Distribution Policy and Restrictions on Distributions — General — Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital” for additional details on how we intend to grow our reserve base and production capacity and the limitations we face in implementing this strategy.
 
Competitive Strengths
 
We believe the following competitive strengths will enable us to execute our business strategies successfully:
 
  •     We have an attractive portfolio of long-term coal sales contracts.  We believe our long-term coal sales contracts provide us with a reliable and stable revenue base. We currently have long-term coal sales contracts in place for 2010, 2011, 2012 and 2013 that represent 97.6%, 101.5%, 81.0% and 50.7%, respectively, of our 2010 estimated coal sales of 8.2 million tons.
 
  •     We have a successful history of growing our reserve base and production capacity.  Historically, we have been successful at replacing the reserves depleted by our annual production and growing our reserve base by acquiring reserves with low operational, geologic and regulatory risks and that are located near our mining operations or that otherwise have the potential to serve our primary market area. We have also been successful in growing our production capacity by expanding our fleet of large scale equipment and opening new mines to meet our sales commitments. Over the last five years, we have produced 23.3 million tons of coal and acquired 52.6 million tons of proven and probable coal reserves, including 24.6 million tons of coal reserves that we acquired in connection with the Phoenix Coal acquisition.
 
  •     Our mining operations are flexible and diverse.  During the first quarter of 2010, our largest mine represented 12.6% of our coal production. We currently have 17 active surface mines that are managed as eight mining complexes. Consistent coal quality across many of our mines and the mobility of our equipment fleet allows us to reliably serve our customers from multiple mining complexes while optimizing our mining plan.
 
  •     We are a low cost producer of coal.  We use efficient mining practices that take advantage of economies of scale and reduce our operating costs per ton. Our use of large scale equipment, our good labor relations with our non-union workforce, the expertise of our general partner’s employees and their knowledge of our mining practices, our low level of legacy liabilities and our history of acquiring reserves without large up-front capital investments have positioned us as one of the lowest cash cost coal producers in Northern Appalachia.
 
  •     Both production of, and demand for, the coal we produce are expected to increase in our primary market area.  According to the EIA, production of coal in Northern Appalachia and the Illinois Basin is expected to increase by 29.2% and 33.1%, respectively, through 2015. This expected increase is attributable to anticipated increases in demand for high-sulfur coal from scrubbed power plants and from consumers of Central Appalachia coal as production in that region continues to decline.
 
  •     Our general partner’s senior management team and key operational employees have extensive industry experience.  The members of our general partner’s senior management team have, on average, 24 years of experience in the coal industry and have a track record of acquiring, building and operating businesses profitably and safely.
 
  •     We have a strong safety and environmental record.  We operate some of the industry’s safest mines. From 2006 through 2009, our MSHA reportable incident rate was on average 14.4% lower than the rate for all surface coal mines in the United States. We have won numerous awards for our strong safety and environmental record.


4


Table of Contents

 
Recent Coal Market Conditions and Trends
 
Coal consumption and production in the United States have been driven in recent periods by several market dynamics and trends. The recent global economic downturn has negatively impacted coal demand in the short-term, but long-term projections for coal demand remain positive.
 
  •     Favorable long-term outlook for U.S. steam coal market.  Although domestic coal consumption declined in 2009 due to the global economic downturn, the EIA forecasts that domestic coal consumption will increase by 14.4% through 2015 and by 32.2% through 2035, primarily due to the projected continued growth in coal-fired electric power generation demand.
 
  •     Increase in coal production in Northern Appalachia and in the Illinois Basin.  According to the EIA, coal production in Northern Appalachia and the Illinois Basin is expected to grow by 29.2% and 33.1%, respectively, through 2015 and by 35.7% and 42.8%, respectively, through 2035.
 
  •     Decline in coal production in Central Appalachia.  The EIA forecasts that coal production in Central Appalachia, the nation’s second largest coal production area, will decline by 34.5% through 2015 and by 54.1% through 2035. This decline will be offset by production from other U.S. regions, including Northern Appalachia and the Illinois Basin.
 
  •     Expected near-term increases in international demand for U.S. coal exports.  Although down from the previous year, U.S. exports began to increase in the second half of 2009, supported by recovering global economies and continued rapid growth in electric power generation and steel production capacity in Asia, particularly in China and India. Also, increased international demand for higher priced metallurgical coal has resulted in certain coal from Central Appalachia and Northern Appalachia, which can serve as either metallurgical or steam coal, being drawn into the metallurgical coal export market, which further reduces supplies of steam coal from this region for domestic consumption.
 
  •     Development of new coal-related technologies will lead to increased demand for coal.  The EIA projects that new coal-to-liquids plants will account for 32 million tons of annual coal demand in ten years and that amount will more than double to 68 million tons by 2035. In addition, through the American Recovery and Reinstatement Act, or ARRA, the U.S. government has targeted over $1.5 billion to carbon capture and sequestration, or CCS, research and another $800 million for the Clean Coal Power Initiative, a ten-year program supporting commercial application of CCS technology.
 
  •     Increasingly stringent air quality legislation will continue to impact the demand for coal.  A series of more stringent requirements related to particulate matter, ozone, mercury, sulfur dioxide, nitrogen oxide, carbon dioxide and other air emissions have been proposed or enacted by federal or state regulatory authorities in recent years. Considerable uncertainty is associated with these air quality regulations, some of which have been the subject of legal challenges in courts, and the actual timing of implementation remains uncertain.
 
Our History
 
We are a Delaware limited partnership that was formed in August 2007 by American Infrastructure MLP Fund, L.P. and our founders, Charles C. Ungurean, the President and Chief Executive Officer of our general partner and a member of the board of directors of our general partner, and Thomas T. Ungurean, the Senior Vice President, Equipment, Procurement and Maintenance of our general partner. Each of our two founders has over 37 years of experience in the coal mining industry. In connection with our formation, our founders contributed all of their interests in Oxford Mining Company to us.
 
Our founders formed Oxford Mining Company in 1985 to provide contract mining services to a mining division of a major oil company. In 1989, our founders transitioned Oxford Mining Company from a contract miner into a producer of its own coal reserves. In January 2007, Oxford Mining Company entered into a joint


5


Table of Contents

venture, Harrison Resources, with a subsidiary of CONSOL Energy to mine surface coal reserves purchased from CONSOL Energy.
 
In September 2009, we completed the acquisition of Phoenix Coal’s active surface mining operations. The Phoenix Coal acquisition provided us with an entry into the Illinois Basin in western Kentucky and included one mining complex comprised of four mines as well as the Island river terminal on the Green River in western Kentucky. In connection with this acquisition, we increased our total proven and probable coal reserves by 24.6 million tons.
 
Our Sponsors
 
American Infrastructure MLP Fund, L.P., together with its subsidiaries and affiliates, or AIM, is a private investment firm specializing in natural resources, infrastructure and real property. AIM, along with certain of the funds that AIM advises, indirectly owns all of the ownership interests in AIM Oxford Holdings, LLC, or AIM Oxford. Brian D. Barlow, Matthew P. Carbone and George E. McCown serve on the board of directors of our general partner and are principals of AIM and have ownership interests in AIM. After completion of this offering, AIM Oxford will continue to hold 66.3% of the ownership interests in our general partner and will hold 9.0% of our common units and 66.3% of our subordinated units (36.9% of our total units).
 
C&T Coal, Inc., or C&T Coal, is owned by our founders, Charles C. Ungurean and Thomas T. Ungurean. After completion of this offering, C&T Coal will continue to hold 33.7% of the ownership interests in our general partner and will hold 4.6% of our common units and 33.7% of our subordinated units (18.8% of our total units).
 
In connection with the contribution of Oxford Mining Company to us in August 2007, C&T Coal, Charles C. Ungurean and Thomas T. Ungurean agreed that they would not compete with us in the coal mining business in Illinois, Kentucky, Ohio, Pennsylvania, West Virginia and Virginia. This non-compete agreement is in effect until August 24, 2014.
 
Summary of Risk Factors
 
An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units. The following is a summary of our risk factors. Please read “Risk Factors” beginning on page 23 carefully for a more thorough description of these risks.
 
Risks Related to Our Business
 
  •     We may not have sufficient cash to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves by our general partner and the payment of costs and expenses, including reimbursement of expenses to our general partner.
 
  •     We must generate approximately $36.7 million of available cash from operating surplus to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. For the year ended December 31, 2009 and the twelve months ended March 31, 2010, we generated only $16.1 million and $10.8 million of available cash from operating surplus, respectively, and would not have been able to pay the full minimum quarterly distribution on our common units or any distributions on our subordinated units during those periods. In addition, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering.
 
  •     The assumptions underlying the forecast of cash available for distribution that we include in “Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and subject to significant risks that could cause our actual cash available for distribution to differ materially from our forecast.


6


Table of Contents

  •     Decreases in demand for electricity and changes in coal consumption patterns of U.S. electric power generators could adversely affect our business.
 
  •     Our long-term coal sales contracts subject us to renewal risks.
 
  •     Our inability to acquire additional coal reserves that are economically recoverable may have a material adverse effect on our future profitability.
 
  •     Competition within the coal industry may materially and adversely affect our ability to sell coal at an acceptable price.
 
  •     We depend on a limited number of customers for a significant portion of our revenues, and the loss of, or significant reduction in, purchases by any of them could adversely affect our results of operations and cash available for distribution to our unitholders.
 
  •     New regulatory requirements limiting greenhouse gas emissions could adversely affect coal-fired power generation and reduce the demand for coal as a fuel source, which could cause the price and quantity of the coal we sell to decline materially.
 
  •     Existing and future regulatory requirements relating to sulfur dioxide and other air emissions could affect our customers and could reduce the demand for the high-sulfur coal we produce and cause coal prices and sales of our high-sulfur coal to decline materially.
 
  •     Our coal mining operations are subject to operating risks, which could result in materially increased operating expenses and decreased production levels and could have a material adverse effect on our business, financial condition or results of operations.
 
  •     In the future, we may not receive cash distributions from Harrison Resources, and Harrison Resources may not be able to acquire additional reserves on economical terms from CONSOL Energy.
 
  •     A significant portion of the cash available for distribution to our unitholders is derived from royalty payments we receive on our underground coal reserves, which we do not operate.
 
  •     Increases in the cost of diesel fuel and explosives, or the inability to obtain a sufficient quantity of those supplies, could increase our operating expenses, disrupt or delay our production and have a material adverse effect on our profitability.
 
  •     Extensive environmental laws and regulations impose significant costs on our mining operations, and future laws and regulations could materially increase those costs or limit our ability to produce and sell coal.
 
  •     We may be unable to obtain, maintain or renew permits necessary for our operations, which would materially reduce our production, cash flows and profitability.
 
  •     If the assumptions underlying our reclamation and mine closure obligations are materially inaccurate, our costs could be significantly greater than anticipated.
 
  •     Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.
 
  •     Restrictions in our new credit facility could adversely affect our business, financial condition, results of operations, ability to make distributions to unitholders and value of our common units.
 
  •     Our operations may impact the environment or cause environmental contamination, which could result in material liabilities to us.
 
  •     Our ability to operate our business effectively could be impaired if we fail to attract and retain key management personnel.
 
  •     A shortage of skilled labor in the mining industry could reduce labor productivity and increase costs, which could have a material adverse effect on our business and results of operations.


7


Table of Contents

  •     Our work force could become unionized in the future, which could adversely affect the stability of our production and materially reduce our profitability.
 
  •     Inaccuracies in our estimates of our coal reserves could result in lower than expected revenues or higher than expected costs.
 
  •     Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.
 
  •     Failure to obtain, maintain or renew our security arrangements, such as surety bonds or letters of credit, in a timely manner and on acceptable terms could have an adverse effect on our cash available for distribution to our unitholders.
 
  •     The amount of estimated reserve replacement expenditures our general partner is required to deduct from operating surplus each quarter is based on our current estimates and could increase in the future, resulting in a decrease in available cash from operating surplus that could be distributed to our unitholders.
 
  •     Our management team does not have experience managing our business as a stand-alone publicly traded partnership, and if they are unable to manage our business as a publicly traded partnership our business may be affected.
 
  •     We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls. If we are unable to establish and maintain effective internal controls, our financial condition and operating results could be adversely affected.
 
  •     Terrorist attacks and threats, escalation of military activity in response to these attacks or acts of war could have a material adverse effect on our business, financial condition or results of operations.
 
Risks Inherent in an Investment in Us
 
  •     Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to our unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
 
  •     Our general partner and its affiliates have conflicts of interest with us, and their limited fiduciary duties to our unitholders may permit them to favor their own interests to the detriment of our unitholders.
 
  •     Our unitholders have limited voting rights and are not entitled to elect our general partner or its directors or initially to remove our general partner without its consent.
 
  •     Our unitholders will experience immediate and substantial dilution of $12.93 per common unit.
 
  •     The control of our general partner may be transferred to a third party without unitholder consent.
 
  •     The incentive distribution rights of our general partner may be transferred to a third party without unitholder consent.
 
  •     Our general partner has a limited call right that may require our unitholders to sell their common units at an undesirable time or price.
 
  •     We may issue additional units without unitholder approval, which would dilute unitholder interests.
 
  •     Our general partner may, without unitholder approval, elect to cause us to issue common units and general partner units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights. This could result in lower distributions to holders of our common units.
 
  •     Cost reimbursements due to our general partner and its affiliates will reduce cash available for distribution to our unitholders.


8


Table of Contents

  •     There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and our unitholders could lose all or part of their investment.
 
  •     We will incur increased costs as a result of being a publicly traded partnership.
 
  •     Our unitholders who fail to furnish certain information requested by our general partner or who our general partner, upon receipt of such information, determines are not eligible citizens will not be entitled to receive distributions or allocations of income or loss on their common units and their common units will be subject to redemption.
 
  •     Our unitholders may have liability to repay distributions.
 
Tax Risks
 
  •     Our tax treatment depends on our status as a partnership for federal income tax purposes. If the IRS were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.
 
  •     If we were subjected to a material amount of additional entity-level taxation by individual states, it would reduce our cash available for distribution to our unitholders.
 
  •     The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
 
  •     Certain federal income tax preferences currently available with respect to coal exploration and development may be eliminated in future legislation.
 
  •     Our unitholders’ share of our income will be taxable to them for U.S. federal income tax purposes even if they do not receive any cash distributions from us.
 
  •     If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to our unitholders.
 
  •     Tax gain or loss on the disposition of our common units could be more or less than expected.
 
  •     Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.
 
  •     We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.
 
  •     We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
 
  •     A unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of those common units. If so, such unitholder would no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
 
  •     We will adopt certain valuation methodologies and monthly conventions for U.S. federal income tax purposes that may result in a shift of income, gain, loss and deduction between our general partner


9


Table of Contents

  and our unitholders. The IRS may challenge this treatment, which could adversely affect the value of our common units.
 
  •     The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.
 
  •     As a result of investing in our common units, you may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.
 
The Transactions
 
Immediately prior to the closing of this offering:
 
  •     we will distribute pro rata, in accordance with their respective interests in us, the right to receive cash collected from an aggregate of $21.0 million of our accounts receivable to our general partner, C&T Coal, AIM Oxford and the participants in the Oxford Resource Partners, LP Long-Term Incentive Plan, or our LTIP, that hold our common units;
 
  •     each general partner unit held by our general partner will automatically split into 1.82 general partner units, resulting in the ownership by our general partner of an aggregate of 244,607 general partner units, representing a 2.0% general partner interest in us;
 
  •     each common unit held by participants in our LTIP will automatically split into 1.82 common units, resulting in their ownership of an aggregate of 126,565 common units, representing an aggregate 1.0% limited partner interest in us;
 
  •     each outstanding phantom unit granted to participants in our LTIP will automatically split into 1.82 phantom units, resulting in their holding an aggregate of 181,248 phantom units;
 
  •     each Class B common unit held by C&T Coal will automatically split into 1.82 Class B common units, resulting in C&T Coal’s ownership of an aggregate of 3,999,696 Class B common units, representing an aggregate 32.7% limited partner interest in us; and
 
  •     each Class B common unit held by AIM Oxford will automatically split into 1.82 Class B common units, resulting in AIM Oxford’s ownership of an aggregate of 7,859,487 Class B common units, representing an aggregate 64.3% limited partner interest in us.
 
In connection with the closing of this offering:
 
  •     all of our Class B common units held by C&T Coal will automatically convert into: (i) 532,476 common units and (ii) 3,467,220 subordinated units;
 
  •     all of our Class B common units held by AIM Oxford will automatically convert into: (i) 1,046,327 common units and (ii) 6,813,160 subordinated units;
 
  •     we will issue 8,750,000 common units to the public in this offering;
 
  •     C&T Coal and AIM Oxford will contribute 59,022 common units and 115,978 common units, respectively, to our general partner as a capital contribution;
 
  •     our general partner will contribute the common units contributed to it by C&T Coal and AIM Oxford to us in exchange for 175,000 general partner units in order to maintain its 2.0% general partner interest in us;
 
  •     we will use the net proceeds from this offering for the purposes set forth in “Use of Proceeds”;
 
  •     we will enter into a new credit facility; and
 
  •     we will use the net proceeds from borrowings under our new credit facility for the purposes set forth in “Use of Proceeds.”


10


Table of Contents

 
Organizational Structure
 
The following is a simplified diagram of our ownership structure after giving effect to this offering and the related transactions.
 
         
Public common units
    41.7 %
Interests of C&T Coal, AIM Oxford and Oxford Resources GP:
       
Common units held by C&T Coal
    2.3 %
Common units held by AIM Oxford
    4.4 %
Subordinated units held by C&T Coal
    16.5 %
Subordinated units held by AIM Oxford
    32.5 %
General partner units held by Oxford Resources GP
    2.0 %
Common units held by participants in our LTIP
    0.6 %
         
      100 %
 
(FLOW CHART)


11


Table of Contents

 
Management and Ownership
 
We are managed and operated by the board of directors and executive officers of our general partner, Oxford Resources GP. Currently, and upon the consummation of this offering, C&T Coal and AIM Oxford will own all of the ownership interests in our general partner. Our unitholders will not be entitled to elect our general partner or its directors or otherwise directly participate in our management or operation. Charles C. Ungurean, the President and Chief Executive Officer of our general partner and a member of the board of directors of our general partner, and Thomas T. Ungurean, the Senior Vice President, Equipment, Procurement and Maintenance of our general partner, own all of the equity interests in C&T Coal. In addition, Brian D. Barlow, Matthew P. Carbone and George E. McCown serve on the board of directors of our general partner and are principals of AIM and have ownership interests in AIM. For information about the executive officers and directors of our general partner, please read “Management.” Our general partner will be liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, our general partner intends to cause us to incur indebtedness or other obligations that are nonrecourse to it.
 
In order to maintain operational flexibility, our operations will be conducted through, and our operating assets will be owned by, Oxford Mining Company and its subsidiaries. However, we, Oxford Mining Company and its subsidiaries do not have any employees. All of the employees that conduct our business are employed by our general partner, but we sometimes refer to these individuals in this prospectus as our employees.
 
Following the consummation of this offering, our general partner and its affiliates will not receive any management fee or other compensation in connection with our general partner’s management of our business, but will be reimbursed for expenses incurred on our behalf. These expenses include the costs of officer and director and other employee compensation and benefits properly allocable to us, and all other expenses necessary or appropriate for the conduct of our business and allocable to us. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us.
 
Our general partner owns general partner units representing a 2.0% general partner interest in us, which entitles it to receive 2.0% of all the distributions we make. Our general partner also owns all of our incentive distribution rights, which will entitle it to increasing percentages, up to a maximum of 48.0%, of the cash we distribute in excess of $0.5031 per unit per quarter, after the closing of our initial public offering. Please read “Certain Relationships and Related Party Transactions.”
 
Principal Executive Offices
 
Our principal executive offices are located at 41 South High Street, Suite 3450, Columbus, Ohio 43215. Our phone number is (614) 643-0314. Following the completion of this offering, our website will be located at http://www.oxfordresources.com. We expect to make our periodic reports and other information filed with or furnished to the SEC available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.
 
Summary of Conflicts of Interest and Fiduciary Duties
 
General.  Our general partner and its directors and officers have a legal duty to manage us in a manner beneficial to our unitholders. This legal duty originates under state law in statutes and judicial decisions and is commonly referred to as a “fiduciary duty.” However, because our general partner is owned by C&T Coal and AIM Oxford, the directors and officers of our general partner also have fiduciary duties to manage the business of our general partner in a manner beneficial to C&T Coal and AIM Oxford. As a result, conflicts of interest may arise in the future between us and our unitholders, on the one hand, and our general partner and its affiliates, on the other hand. For a more detailed description of the conflicts of interest and fiduciary duties of our general partner, please read “Conflicts of Interest and Fiduciary Duties.”


12


Table of Contents

Partnership Agreement Modifications of Fiduciary Duties.  Delaware law provides that Delaware limited partnerships may, in their partnership agreements, restrict or expand the fiduciary duties owed by the general partner to limited partners and the partnership. Our partnership agreement limits the liability of, and reduces the fiduciary duties owed by, our general partner and the directors and officers of our general partner to us and our unitholders. Our partnership agreement also restricts the remedies available to our unitholders for actions that might otherwise constitute breaches of fiduciary duty by our general partner and its directors and officers. By purchasing a common unit, our unitholders are treated as having consented to various actions contemplated in the partnership agreement and conflicts of interest that might otherwise be considered a breach of fiduciary or other duties under applicable law. Please read “Conflicts of Interest and Fiduciary Duties — Fiduciary Duties” for a description of the fiduciary duties imposed on our general partner and its directors and officers by Delaware law, the material modifications of these duties contained in our partnership agreement and certain legal rights and remedies available to our unitholders.
 
For a description of our other relationships with our affiliates, please read “Certain Relationships and Related Party Transactions.”


13


Table of Contents

 
The Offering
 
Common units offered to the public 8,750,000 common units.
 
10,062,500 common units if the underwriters exercise their option to purchase additional common units in full.
 
Units outstanding after this offering 10,280,368 common units representing a 49.0% limited partner interest in us and 10,280,380 subordinated units representing a 49.0% limited partner interest in us.
 
Our general partner will own 419,607 general partner units, representing a 2.0% general partner interest in us.
 
Use of proceeds We intend to use the net proceeds from this offering of approximately $150.5 million, after deducting underwriting discounts and commissions and structuring fees but before paying offering expenses, to (i) repay in full the outstanding balance under our existing credit facility, (ii) distribute approximately $18.3 million to C&T Coal, (iii) distribute approximately $0.6 million to the participants in our LTIP that hold our common units, (iv) terminate our advisory services agreement with affiliates of AIM for a payment of approximately $2.5 million, (v) pay offering expenses of approximately $3.1 million, (vi) purchase currently leased and additional major mining equipment for approximately $22.1 million and (vii) replenish approximately $7.4 million of our working capital.
 
We will use the proceeds from borrowings of approximately $86.0 million under our new credit facility to (i) distribute approximately $35.9 million to AIM Oxford, (ii) pay fees and expenses relating to our new credit facility of approximately $5.3 million, (iii) distribute approximately $1.1 million to our general partner in respect of its general partner interest, (iv) replenish approximately $11.6 million of our working capital that we distributed to our partners immediately prior to the closing of this offering and (v) purchase currently leased and additional major mining equipment for approximately $32.1 million.
 
If the underwriters’ option to purchase additional common units is exercised in full, we will use the net proceeds to redeem from C&T Coal and AIM Oxford a number of common units equal to the number of common units issued upon such exercise, at a price per common unit equal to the proceeds per common unit before expenses but after deducting underwriting discounts and commissions and structuring fees.
 
For more information about our use of the proceeds of this offering, including a tabular summary, please read “Use of Proceeds.”
 
Cash distributions We intend to pay a minimum quarterly distribution of $0.4375 per common unit (or $1.75 per common unit on an annualized basis) to the extent we have sufficient cash after the establishment of cash reserves by our general partner and the payment of our costs and


14


Table of Contents

expenses, including reimbursement of expenses to our general partner and its affiliates.
 
Our ability to pay cash distributions at this minimum quarterly distribution rate is subject to various restrictions and other factors described in more detail under “Cash Distribution Policy and Restrictions on Distributions.”
 
We do not expect to make distributions with respect to the quarter ended June 30, 2010 or for the period that begins on July 1, 2010 and ends on the day prior to the closing of this offering other than the distributions to be made in connection with the closing of this offering that are described in “Summary — The Transactions” and “Use of Proceeds.” We will adjust the minimum quarterly distribution for the period from the closing of this offering through September 30, 2010 based on the actual length of the period.
 
Our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter after the payment of costs and expenses, less reserves established by our general partner. We refer to this cash as “available cash,” and we define its meaning in our partnership agreement, in “How We Make Cash Distributions — Distributions of Available Cash — Definition of Available Cash” and in the glossary of terms attached as Appendix B.
 
In general, we will pay any cash distributions we make each quarter in the following manner:
 
•    first, 98.0% to the holders of common units and 2.0% to our general partner, until each common unit has received a minimum quarterly distribution of $0.4375 plus any arrearages from prior quarters;
 
•    second, 98.0% to the holders of subordinated units and 2.0% to our general partner, until each subordinated unit has received a minimum quarterly distribution of $0.4375; and
 
•    third, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unit has received a distribution of $0.5031.
 
If cash distributions to our unitholders exceed $0.5031 per common and subordinated unit in any quarter, our unitholders and our general partner will receive distributions according to the following percentage allocations:
 
                 
          Marginal Percentage Interest
Total Quarterly Distribution
    in Distributions
Target Amount     Unitholders   General Partner
 
above $0.5031 up to $0.5469
  85%   15%
above $0.5469 up to $0.6563
  75%   25%
above $0.6563
  50%   50%
 
Please read “How We Make Cash Distribution — General Partner Interest and Incentive Distribution Rights.”


15


Table of Contents

 
Our historical cash available for distribution generated during the year ended December 31, 2009 and the twelve months ended March 31, 2010 was $16.1 million and $10.8 million, respectively. The amount of available cash we need to pay the minimum quarterly distribution for four quarters on our common units, subordinated units and general partner units to be outstanding immediately after this offering is approximately $36.7 million (or an average of $9.2 million per quarter). As a result, for the year ended December 31, 2009 and the twelve months ended March 31, 2010 we would have generated aggregate available cash sufficient to pay only 87.8% and 58.8%, respectively, of the aggregate minimum quarterly distribution on our common units during those periods, and we would not have been able to pay any distributions on our subordinated units in those periods. We have not used quarter-by-quarter estimates for each quarter in the year ended December 31, 2009 and the twelve months ended March 31, 2010 to determine if we would have generated available cash sufficient to pay the minimum quarterly distribution for each quarter during those periods. Please read “Cash Distribution Policy and Restrictions on Distributions — Historical and Forecasted Results of Operations and Cash Available for Distribution.”
 
We have included a forecast of our cash available for distribution for the twelve months ending June 30, 2011 in “Cash Distribution Policy and Restrictions on Distributions — Historical and Forecasted Results of Operations and Cash Available for Distribution.” We believe, based on our financial forecast and related assumptions, that we will have sufficient available cash to enable us to pay the full minimum quarterly distribution of $0.4375 on all of our common units and subordinated units and the corresponding distribution on our general partner’s 2.0% general partner interest for the four quarters ending June 30, 2011. Based on our financial forecast and related assumptions, we forecast that our cash available for distribution for the twelve months ending June 30, 2011 will be approximately $44.1 million. Although we believe we will have available cash sufficient to pay the minimum quarterly distribution on all of our units for each quarter in the forecast period, we do not provide a quarterly forecast for each quarter in the forecast period due to the uncertainty surrounding the precise timing of certain anticipated capital expenditures during the latter part of the forecast period. During the quarter ending September 30, 2010, we expect that cash generated from operations will be approximately $6.9 million, or approximately $2.3 million less than the amount of cash needed to pay the entire minimum quarterly distribution on all of our outstanding units. As a result, during that period we expect to generate cash from operations sufficient to pay the entire minimum quarterly distribution on our common units, but only 52.9% of the minimum quarterly distribution on our subordinated units. We expect to fund the additional $2.3 million distribution on our subordinated units with cash on-hand or working capital borrowings.
 
Our financial forecast does not include the quarter ended June 30, 2010 and we do not have complete financial information available


16


Table of Contents

with respect to that quarter. However, based on the preliminary financial information we have available at this time, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. Please read “Cash Distribution Policy and Restrictions on Distributions — Anticipated Cash Available for Distribution for the Quarter Ended June 30, 2010.”
 
Although we do not anticipate any distributions out of capital surplus, as opposed to operating surplus, any such distributions would constitute a return of capital to our unitholders and would result in a reduction in the minimum quarterly distribution and target distribution levels. For a further description of the treatment of distributions from capital surplus, please read “How We Make Cash Distributions — Distributions from Capital Surplus — Effect of a Distribution from Capital Surplus.”
 
Subordinated units C&T Coal and AIM Oxford will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that, in any quarter during the subordination period, the subordinated units are not entitled to receive any distributions of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages.
 
Conversion of subordinated units The subordination period will end on the first business day after we have earned and paid from operating surplus generated in the applicable period at least (i) $1.75 (the minimum quarterly distribution on an annualized basis) on each outstanding common and subordinated unit and the corresponding distribution on our general partner units for each of three consecutive, non-overlapping four quarter periods ending on or after September 30, 2013 or (ii) $0.65625 per quarter (150.0% of the minimum quarterly distribution, which is $2.625 on an annualized basis) on each outstanding common and subordinated unit and the corresponding distributions on our general partner units for any four quarter period ending on or after September 30, 2011, in each case provided there are no arrearages on our common units at that time.
 
In addition, the subordination period will end upon the removal of our general partner other than for cause if the units held by our general partner and its affiliates are not voted in favor of such removal.
 
When the subordination period ends, all subordinated units will convert into common units on a one-for-one basis, and the common units will no longer be entitled to arrearages. Please read “How We Make Cash Distributions — Subordination Period.”
 
General partner’s right to reset the target distribution levels Our general partner has the right, at a time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48%) for


17


Table of Contents

each of the prior four consecutive fiscal quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution.
 
If our general partner elects to reset the target distribution levels, it will be entitled to receive common units and additional general partner units. The number of common units to be issued to our general partner will be equal to the number of common units that would have entitled their holder to an aggregate quarterly cash distribution equal to the average of the distributions to our general partner on the incentive distribution rights in the prior two quarters, assuming a per unit distribution equal to the average of the distribution for the prior two quarters. Our general partner will be issued the number of general partner units necessary to maintain its general partner interest in us immediately prior to the reset election. Please read “How We Make Cash Distributions — General Partner’s Right to Reset Incentive Distribution Levels.”
 
Issuance of additional units Our partnership agreement authorizes us to issue an unlimited number of additional units without the approval of our unitholders. Please read “Units Eligible for Future Sale” and “The Partnership Agreement — Issuance of Additional Securities.”
 
Limited voting rights Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business. Our unitholders will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 80% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon consummation of this offering, our general partner and its affiliates will own an aggregate of 57.1% of our common and subordinated units. This will give our general partner the ability to prevent its involuntary removal. Please read “The Partnership Agreement — Voting Rights.”
 
Limited call right If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a price not less than the then-current market price of the common units. Please read “The Partnership Agreement — Limited Call Right.”
 
Estimated ratio of taxable income to distributions We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2013, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be 25% or less of the cash distributed with respect to that period.


18


Table of Contents

For example, if you receive an annual distribution of $1.75 per unit, we estimate that your average allocable federal taxable income per year will be no more than approximately $0.44 per unit. Please read “Material Federal Income Tax Consequences — Tax Consequences of Unit Ownership — Ratio of Taxable Income to Distributions” for the basis of this estimate.
 
Directed unit program At our request, the underwriters have established a directed unit program under which they have reserved for sale at the initial public offering price up to 5% of the common units offered by this prospectus for our officers, directors and employees of our general partner and certain friends and family of our sponsors, and the officers, directors and employees of our general partner. The number of common units available for sale to the public will be reduced by the number of directed common units purchased by participants in the program. Any directed common units not so purchased will be offered by the underwriters to the public on the same basis as the other common units offered by this prospectus. Please read “Underwriting — Directed Unit Program.”
 
Material federal income tax consequences For a discussion of the material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read “Material Federal Income Tax Consequences.”
 
Exchange listing Our common units have been approved for listing on the New York Stock Exchange under the symbol “OXF.”


19


Table of Contents

 
Summary Historical and Pro Forma Consolidated Financial and Operating Data
 
The following table presents our summary historical consolidated financial and operating data, as well as that of our accounting predecessor and wholly owned subsidiary, Oxford Mining Company, as of the dates and for the periods indicated. The following table also presents our summary pro forma consolidated financial and operating data as of the dates and for the periods indicated.
 
The summary historical consolidated financial data presented as of August 23, 2007 and for the period from January 1, 2007 to August 23, 2007 are derived from the audited historical consolidated financial statements of Oxford Mining Company that are included elsewhere in this prospectus. The summary historical consolidated financial data presented as of December 31, 2007, for the period from August 24, 2007 to December 31, 2007 and as of and for the years ended December 31, 2008 and 2009 are derived from our audited historical consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial data presented as of and for the quarters ended March 31, 2009 and 2010 are derived from our unaudited historical condensed consolidated financial statements included elsewhere in this prospectus.
 
The summary pro forma consolidated financial data presented for the year ended December 31, 2009 and as of and for the quarter ended March 31, 2010 are derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. Our unaudited pro forma consolidated financial statements give pro forma effect to (i) the Phoenix Coal acquisition and (ii) this offering and the transactions related to this offering described in “Summary — The Transactions” and the application of the net proceeds from this offering described in “Use of Proceeds.” The unaudited pro forma consolidated balance sheet as of March 31, 2010 assumes this offering occurred as of March 31, 2010. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2009 and the quarter ended March 31, 2010 assume the Phoenix Coal acquisition, this offering and the transactions related to this offering occurred as of January 1, 2009. We have not given pro forma effect to incremental selling, general and administrative expenses of approximately $3.0 million that we expect to incur as a result of being a publicly traded partnership.
 
For a detailed discussion of the following table, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following table should also be read in conjunction with “Summary — The Transactions,” “Use of Proceeds,” “Business — Our History,” the historical consolidated financial statements of Oxford Mining Company, the historical combined financial statements for the carved-out surface mining operations of Phoenix Coal and our unaudited pro forma consolidated financial statements and audited consolidated financial statements included elsewhere in this prospectus. Among other things, those historical and pro forma consolidated financial statements include more detailed information regarding the basis of presentation for the information in the following table.
 
The following table presents a non-GAAP financial measure, Adjusted EBITDA, which we use in our business as it is an important supplemental measure of our performance. Adjusted EBITDA represents net income (loss) attributable to our unitholders before interest, taxes, depreciation, depletion and amortization, gain from purchase of a business, amortization of below-market coal sales contracts and non-cash equity compensation expense. This measure is not calculated or presented in accordance with GAAP. We explain this measure below and reconcile it to its most directly comparable financial measure calculated and presented in accordance with GAAP.
 


20


Table of Contents

                                                                     
    Oxford
                               
    Mining
                          Pro Forma Oxford
    Company
    Oxford Resource Partners, LP
    Resource Partners, LP
    (Predecessor)
    (Successor)     (Successor)
    Period from
    Period from
                         
    January 1,
    August 24,
                        Quarter
    2007 to
    2007 to
  Year Ended
  Quarter Ended
    Year Ended
  Ended
    August 23,
    December 31,
  December 31,   March 31,     December 31,
  March 31,
    2007     2007   2008   2009   2009   2010     2009   2010
                      (unaudited)          
              (In thousands, except per ton amounts)     (unaudited)
Statement of Operations Data:
                                                                   
Revenues:
                                                                   
Coal sales
  $ 96,799       $ 61,324     $ 193,699     $ 254,171     $ 67,377     $ 76,756       $ 312,490     $ 76,756  
Transportation revenue
    18,083         10,204       31,839       32,490       8,660       9,530         37,221       9,530  
Royalty and non-coal revenue
    3,267         1,407       4,951       7,183       2,402       1,774         7,183       1,774  
                                                                     
Total revenues
    118,149         72,935       230,489       293,844       78,439       88,060         356,894       88,060  
Costs and expenses:
                                                                   
Cost of coal sales (excluding DD&A, shown separately)
    70,415         40,721       151,421       170,698       40,825       55,186         208,574       53,254  
Cost of purchased coal
    17,494         9,468       12,925       19,487       8,505       7,859         29,792       7,859  
Cost of transportation
    18,083         10,204       31,839       32,490       8,660       9,530         37,221       9,530  
Depreciation, depletion, and amortization
    9,025         4,926       16,660       25,902       5,688       8,777         41,369       11,270  
Selling, general and administrative expenses
    3,643         2,114       9,577       13,242       3,101       3,535         25,735       3,458  
                                                                     
Total costs and expenses
    118,660         67,433       222,422       261,819       66,779       84,887         342,691       85,371  
                                                                     
Income (loss) from operations
    (511 )       5,502       8,067       32,025       11,660       3,173         14,203       2,689  
Interest income
    26         55       62       35       11       1         39       1  
Interest expense
    (2,386 )       (3,498 )     (7,720 )     (6,484 )     (1,123 )     (1,833 )       (7,906 )     (1,978 )
Gain from purchase of business(1)
                        3,823                     3,823        
                                                                     
Net income (loss)
    (2,871 )       2,059       409       29,399       10,548       1,341         10,159       712  
Less: Net income attributable to noncontrolling interest
    (682 )       (537 )     (2,891 )     (5,895 )     (1,165 )     (1,628 )       (5,895 )     (1,628 )
                                                                     
Net income (loss) attributable to Oxford Resource Partners, LP unitholders
  $ (3,553 )     $ 1,522     $ (2,482 )   $ 23,504     $ 9,383     $ (287 )     $ 4,264     $ (916 )
                                                                     
Statement of Cash Flows Data:
                                                                   
Net cash provided by (used in):
                                                                   
Operating activities
  $ 17,634       $ (8,519 )   $ 33,992     $ 37,183     $ 10,502     $ 8,341                    
Investing activities
    (16,619 )       (98,745 )     (23,942 )     (49,528 )     (7,482 )     (10,280 )                  
Financing activities
    (234 )       106,724       4,494       532       2,442       (137 )                  
Other Financial Data:
                                                                   
Adjusted EBITDA(2)
  $ 7,832       $ 7,961     $ 21,533     $ 50,799     $ 16,292     $ 10,001       $ 43,888     $ 12,010  
Reserve replacement expenditures(3)
    1,297         163       2,526       3,057       61       528         3,057       528  
Other maintenance capital expenditures(3)
    11,305         7,420       25,321       25,657       6,715       4,995         25,657       4,995  
Distributions
                    12,503       13,407       2,523       2,818         n/a       n/a  
Balance Sheet Data (at period end):
                                                                   
Cash and cash equivalents
  $ 1,175       $ 635     $ 15,179     $ 3,366     $ 20,641     $ 1,290               $ 23,317  
Trade accounts receivable
    18,396         17,547       21,528       24,403       23,196       29,838                 8,838  
Inventory
    4,824         4,655       5,134       8,801       6,584       10,390                 10,390  
Property, plant and equipment, net
    54,510         106,408       112,446       149,461       117,031       147,949                 202,118  
Total assets
    90,893         146,774       171,297       203,363       184,982       212,917                 269,813  
Total debt (current and long-term)
    43,165         75,529       83,977       95,711       91,799       98,432                 90,915  
Operating Data:
                                                                   
Tons of coal produced
    2,693         1,634       5,089       5,846       1,396       1,806         7,221       1,806  
Tons of coal purchased
    641         305       434       530       192       258         885       258  
Tons of coal sold
    3,333         1,938       5,528       6,311       1,559       2,036         8,051       2,036  
Average sales price per ton(4)
  $ 29.04       $ 31.64     $ 35.04     $ 40.27     $ 43.23     $ 37.71       $ 38.81     $ 37.71  
Cost of coal sales per ton produced(5)
  $ 26.15       $ 24.92     $ 29.75     $ 29.20     $ 29.25     $ 30.56       $ 28.89     $ 29.49  
Cost of purchased coal per ton(6)
  $ 27.29       $ 31.08     $ 29.81     $ 36.79     $ 44.32     $ 30.51       $ 33.67     $ 30.51  
 
 
(1) On September 30, 2009, we acquired all of the active surfacing mining operations of Phoenix Coal. The purchase price of this acquisition was less than the fair value of the net assets and liabilities we acquired. We recorded this difference as a gain of $3.8 million for the year ended December 31, 2009.
 
(2) See “Selected Historical and Pro Forma Consolidated Financial and Operating Data” for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income attributable to our unitholders.

21


Table of Contents

 
(3) Maintenance capital expenditures are cash expenditures made to maintain or replace, including over the long term, our operating capacity, asset base or operating income. Our partnership agreement divides maintenance capital expenditures into two categories — reserve replacement expenditures and other maintenance capital expenditures. Examples of reserve replacement expenditures include cash expenditures for the purchase of fee interests in coal reserves and cash expenditures for advance royalties with respect to the acquisition of leasehold interests in coal reserves. Examples of other maintenance capital expenditures include capital expenditures associated with the repair, refurbishment and replacement of equipment. Historically, we have not made a distinction between maintenance capital expenditures and other capital expenditures. For purposes of this presentation, however, we have evaluated our historical capital expenditures to estimate which of them would have been reserve replacement expenditures and which of them would have been other maintenance capital expenditures had we classified them as such at the time they were made. The amounts shown reflect our estimates based on that evaluation.
 
(4) Represents our coal sales divided by total tons of coal sold.
 
(5) Represents our cost of coal sales (excluding DD&A) divided by the tons of coal we produce.
 
(6) Represents the cost of purchased coal divided by the tons of coal we purchase.


22


Table of Contents

 
RISK FACTORS
 
Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common units.
 
If any of the following risks were to occur, our business, financial condition, results of operations and cash available for distribution could be materially adversely affected. In that case, we might not be able to make distributions on our common units, the trading price of our common units could decline and you could lose all or part of your investment.
 
Risks Related to Our Business
 
 
We may not have sufficient cash each quarter to pay the minimum quarterly distribution. The amount of cash we can distribute on our common and subordinated units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:
 
  •     the level of our production and coal sales and the amount of revenue we generate;
 
  •     the level of our operating costs, including reimbursement of expenses to our general partner;
 
  •     changes in governmental regulation of the mining industry or the electric power industry and the increased costs of complying with those changes;
 
  •     our ability to obtain, renew and maintain permits on a timely basis;
 
  •     prevailing economic and market conditions; and
 
  •     difficulties in collecting our receivables because of credit or financial problems of major customers.
 
In addition, the actual amount of cash we will have available for distribution will depend on other factors, such as:
 
  •     the level of capital expenditures we make;
 
  •     the restrictions contained in our credit agreement and our debt service requirements;
 
  •     the cost of acquisitions;
 
  •     fluctuations in our working capital needs;
 
  •     our ability to borrow funds and access capital markets; and
 
  •     the amount of cash reserves established by our general partner.
 
For a description of additional restrictions and factors that may affect our ability to make cash distributions, please read “Cash Distribution Policy and Restrictions on Distributions.”
 
We must generate approximately $36.7 million of available cash from operating surplus to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. For the year ended December 31, 2009 and the twelve months ended March 31, 2010, we generated only $16.1 million and $10.8 million of available cash from operating surplus, respectively, and would not have been able to pay the full minimum quarterly distribution on our common units or any distributions on our subordinated units during those periods. We believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering.


23


Table of Contents

We must generate approximately $36.7 million (or an average of $9.2 million per quarter) of available cash to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. We did not generate an aggregate of $36.7 million of available cash from operating surplus during the year ended December 31, 2009 and the twelve months ended March 31, 2010. The aggregate amounts we generated with respect to those periods were $16.1 million and $10.8 million, respectively. As a result, for those periods we would have generated aggregate available cash sufficient to pay only 87.8% and 58.8%, respectively, of the aggregate minimum quarterly distribution on our common units during those periods, and we would not have been able to pay any distributions on our subordinated units during those periods. We have not used quarter-by-quarter estimates for each quarter in the year ended December 31, 2009 and the twelve months ended March 31, 2010 to determine if we would have generated available cash sufficient to pay the minimum quarterly distribution for each quarter during those periods.
 
Our financial forecast does not include the quarter ended June 30, 2010 and we do not have complete financial information available with respect to that quarter. However, based on the preliminary financial information we have available at this time, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. Please read “Cash Distribution Policy and Restrictions on Distributions — Anticipated Cash Available for Distribution for the Quarter Ended June 30, 2010.” In addition, even though we do not provide a quarterly forecast for each quarter in the twelve months ending June 30, 2011, we expect to generate cash available for distribution for the quarter ending September 30, 2010 of approximately $6.9 million, or approximately $2.3 million less than the amount of cash needed to pay the full minimum quarterly distribution on all of our outstanding units. Please read “Cash Distribution Policy and Restrictions on Distributions — Historical and Forecasted Results of Operations and Cash Available for Distribution.”
 
 
We would not have generated sufficient cash available for distribution to pay the full minimum quarterly distribution for the four quarters ended December 31, 2009 or for the four quarters ended March 31, 2009 and we do not expect to generate sufficient cash available for distribution to pay the full minimum quarterly distribution for the quarter ended June 30, 2010. The forecast of cash available for distribution set forth in “Cash Distribution Policy and Restrictions on Distributions” includes our forecast of our results of operations and cash available for distribution for the twelve months ending June 30, 2011. Our ability to pay the full minimum quarterly distribution in the forecast period is based on a number of assumptions that may not prove to be correct and that are discussed in “Cash Distribution Policy and Restrictions on Distributions.” These assumptions include, but are not limited to, the following:
 
  •  the lower operating expenses we expect from our investment in major mining equipment with a portion of the proceeds from the transactions contemplated by this offering;
 
  •  the expected cash flow impact of eliminating operating lease payments by purchasing the major mining equipment that we currently lease with the proceeds from the transactions contemplated by this offering;
 
  •  the expected cash flow impact of a full year of operations at our Muhlenberg County mining complex that we acquired in the Phoenix Coal acquisition and the expected cash flow impact of the implementation of more efficient mining practices at that complex; and
 
  •  the expected cash flow impact from price increases embedded in our long term coal sales contracts.
 
The financial forecast has been prepared by management, and we have neither received nor requested an opinion or report on it from our or any other independent auditor. The assumptions underlying the forecast are


24


Table of Contents

inherently uncertain and are subject to significant business, economic, regulatory and competitive risks, including those discussed below, that could cause actual cash available for distribution to be materially less than the amount forecasted. If we do not achieve the forecasted results, we may not be able to pay the minimum quarterly distribution or any amount on our common units or subordinated units and the market price of our common units may decline materially. For a forecast of our ability to pay the full minimum quarterly distribution on our common units, subordinated units and general partner units for the twelve months ending June 30, 2011, please read “Cash Distribution Policy and Restrictions on Distributions.”
 
 
Our business is closely linked to domestic demand for electricity and any changes in coal consumption by U.S. electric power generators would likely impact our business over the long term. In 2009 we sold approximately 89% of our coal to domestic electric power generators, and we have long-term contracts in place with these electric power generators for a significant portion of our future production. The amount of coal consumed by electric power generation is affected by, among other things:
 
  •     general economic conditions, particularly those affecting industrial electric power demand, such as the recent downturn in the U.S. economy and financial markets;
 
  •     indirect competition from alternative fuel sources for power generation, such as natural gas, fuel oil, nuclear, hydroelectric, wind and solar power, and the location, availability, quality and price of those alternative fuel sources;
 
  •     environmental and other governmental regulations, including those impacting coal-fired power plants; and
 
  •     energy conservation efforts and related governmental policies.
 
According to the EIA, total electricity consumption in the United States fell by approximately 3.8% during 2009 compared with 2008, primarily because of the effect of the economic downturn on industrial electricity demand, and U.S. electric generation from coal fell by approximately 11.0% in 2009 compared with 2008. Further decreases in the demand for electricity, such as decreases that could be caused by a worsening of current economic conditions, a prolonged economic recession or other similar events, could have a material adverse effect on the demand for coal and on our business over the long term.
 
Changes in the coal industry that affect our customers, such as those caused by decreased electricity demand and increased competition, could also adversely affect our business. Indirect competition from gas-fired plants that are cheaper to construct and easier to permit has the most potential to displace a significant amount of coal-fired generation in the near term, particularly older, less efficient coal-powered generators. In addition, uncertainty caused by federal and state regulations could cause coal customers to be uncertain of their coal requirements in future years, which could adversely affect our ability to sell coal to our customers under long-term coal sales contracts.
 
 
We sell most of the coal we produce under long-term coal sales contracts, which we define as contracts with terms greater than one year. As a result, our results of operations are dependent upon the prices we receive for the coal we sell under these contracts. To the extent we are not successful in renewing, extending or renegotiating our long-term contracts on favorable terms, we may have to accept lower prices for the coal we sell or sell reduced quantities of coal in order to secure new sales contracts for our coal.
 
In addition, we may be adversely affected by extensions of our long-term coal sales contract with American Electric Power Service Corporation, or AEP, if market prices for coal under long term contracts are low at the time of such extensions or if increases in costs during the term of such extensions are greater than the offsets from our cost pass through and inflation adjustment provisions. The current term of our contract with AEP runs through 2012, but it can be extended for two additional three-year terms. For each extension term, the initial contract price will be based upon a market-based price for similar term contracts and will be


25


Table of Contents

negotiated at the time of such extension, subject to cost pass through and inflation adjustment provisions. The contract also contains option provisions that give AEP the right to purchase additional tons of coal during each extension term at a fixed price. If AEP elects to extend this contract during a period when market prices for coal under similar term contracts are low, then we may be materially and adversely affected if the contract price we are able to negotiate with AEP is lower than our marginal cost of production. Alternatively, we may be materially and adversely affected if our marginal cost of production increases by more than the offsets from our cost pass through and inflation adjustment provisions.
 
Prices and quantities under our long-term coal sales contracts are generally based on expectations of future coal prices at the time the contract is entered into, renewed, extended or re-opened. The expectation of future prices for coal depends upon factors beyond our control, including the following:
 
  •     domestic and foreign supply and demand for coal;
 
  •     domestic demand for electricity, which tends to follow changes in general economic activity;
 
  •     domestic and foreign economic conditions;
 
  •     the price, quantity and quality of other coal available to our customers;
 
  •     competition for production of electricity from non-coal sources, including the price and availability of alternative fuels and other sources, such as natural gas, fuel oil, nuclear, hydroelectric, wind and solar power, and the effects of technological developments related to these non-coal energy sources;
 
  •     domestic air emission standards for coal-fired power plants, and the ability of coal-fired power plants to meet these standards by installing scrubbers, purchasing emissions allowances or other means; and
 
  •     legislative and judicial developments, regulatory changes, or changes in energy policy and energy conservation measures that would adversely affect the coal industry.
 
For more information regarding our long-term coal sales contracts, please read “Business — Customers — Long-Term Coal Sales Contracts.”
 
 
Our profitability depends substantially on our ability to mine, in a cost-effective manner, coal reserves that possess the quality characteristics our customers desire. Because our reserves decline as we mine our coal, our future profitability depends upon our ability to acquire additional coal reserves that are economically recoverable to replace the reserves we produce. If we fail to acquire or develop sufficient additional reserves to replace the reserves depleted by our production, our existing reserves will eventually be depleted. Please read “Business — Coal Reserves.”
 
 
We compete for domestic sales with numerous other coal producers in Northern Appalachia and the Illinois Basin and in other coal producing regions of the United States, primarily Central Appalachia and the Powder River Basin, or the PRB. The most important factors on which we compete are delivered price (i.e., the cost of coal delivered to the customer, including transportation costs, which are generally paid by our customers either directly or indirectly), coal quality characteristics (primarily heat, sulfur, ash and moisture content) and reliability of supply. Our competitors may have, among other things, greater liquidity, greater access to credit and other financial resources, newer or more efficient equipment, lower cost structures (like our competitors in the PRB), partnerships with transportation companies or more effective risk management policies and procedures. Our failure to compete successfully could have a material adverse effect on our business, financial condition or results of operations.


26


Table of Contents

 
We derived 77% and 72% of our revenues from coal sales to our five largest customers for the year ended December 31, 2009 and the first quarter of 2010, respectively, and as of July 13, 2010, we had long-term coal sales contracts in place with these same customers for 84% of our estimated coal production from operations for the year ending December 31, 2010. We expect to continue to derive a substantial amount of our total revenues from a small number of customers in the future. However, we may be unsuccessful in renewing long-term coal sales contracts with our largest customers, and those customers may discontinue or reduce purchasing coal from us. If any of our largest customers significantly reduces the quantities of coal it purchases from us and if we are unable to sell such excess coal to our other customers on terms substantially similar to the terms under our current long-term coal sales contracts, our business, our results of operations and our ability to make distributions to our unitholders could be adversely affected.
 
 
One major by-product of burning coal is carbon dioxide, which is a greenhouse gas and a source of concern with respect to global warming, also known as climate change. Climate change continues to attract government, public and scientific attention, especially on ways to reduce greenhouse gas emissions, including from coal-fired power plants. Various international, federal, regional and state regulatory proposals are being considered to limit emissions of greenhouse gases, including possible future U.S. treaty commitments, new federal or state legislation that may establish a cap-and-trade, and regulation under existing environmental laws by the U.S. Environmental Protection Agency, or the EPA. Future regulation of greenhouse gas emissions may require additional controls on, or the closure of, coal-fired power plants and industrial boilers and may restrict the construction of new coal-fired power plants.
 
The permitting of new coal-fired power plants has also recently been contested by state regulators and environmental advocacy organizations due to concerns related to greenhouse gas emissions. In addition, a federal appeals courts has allowed a lawsuit pursuing federal common law claims to proceed against certain utilities on the basis that they may have created a public nuisance due to their emissions of carbon dioxide, while a second federal appeals court dismissed such a case on procedural grounds. Future regulation, litigation and permitting related to greenhouse gas emissions may cause some users of coal to switch from coal to a lower-carbon fuel, or otherwise reduce the use of and demand for fossil fuels, particularly coal, which could have a material adverse effect on our business, financial condition or results of operations. For a more detailed discussion of potential climate change impact, please read “Business — Regulation and Laws — Climate Change.”
 
 
Coal-fired power plants are subject to extensive environmental regulation, particularly with respect to air emissions. In addition, the EPA recently issued a new stricter national ambient air quality standard or NAAQS for sulfur dioxide emissions based on a one hour standard to minimize health-based risks. For example, the Clean Air Act Amendments of 1990, or the CAAA, and similar state and local laws place annual limits on emissions of sulfur dioxide, particulate matter, nitrogen oxides, mercury and other compounds, including emissions by electric power generators, which are the largest end-users of our coal. The ability of coal-fired power plants to burn the high-sulfur coal we produce may be limited without the use of costly pollution control devices such as scrubbers, the purchase of emission allowances or the blending of our high-sulfur coal with low-sulfur coal.
 
Projected demand growth for high-sulfur coal in our primary market area is largely dependent on planned installations of scrubbers at new and existing coal-fired power plants that use or plan to use high-sulfur coal as


27


Table of Contents

a fuel. The timing and amount of these scrubber installations may be affected by, among other things, anticipated changes in air quality regulations and the price and availability of sulfur dioxide emissions allowances. To the extent that these scrubber installations do not occur or are substantially delayed and sufficient sulfur dioxide allowances are unavailable or are prohibitively expensive, demand for our high-sulfur coal could materially decrease, which could have a material adverse effect on our business, financial condition or results of operations.
 
 
Our coal mining operations are subject to a number of operating risks beyond our control. Because we maintain very limited produced coal inventory, various conditions or events could disrupt operations, adversely affect production and shipments and materially increase the cost of mining and delay or halt production at particular mines for varying lengths of time, which could have a material adverse effect on our business, financial condition or results of operations. These conditions and events include, among others:
 
  •     poor mining conditions resulting from geologic, hydrologic or other conditions, which may cause instability of highwalls or spoil-piles or cause damage to nearby infrastructure;
 
  •     adverse weather and natural disasters, such as heavy rains or flooding;
 
  •     the unavailability of qualified labor and contractors;
 
  •     the unavailability or increased prices of equipment or other critical supplies such as tires and explosives, fuel, lubricants and other consumables;
 
  •     fluctuations in transportation costs and transportation delays or interruptions, including those caused by river flooding and lock closures for repairs;
 
  •     delays, challenges to, and difficulties in acquiring, maintaining or renewing permits or mineral and surface rights;
 
  •     future health, safety and environmental regulations or changes in the interpretation or enforcement of existing regulations;
 
  •     mine accidents or other unforeseen casualty events, including those involving injuries or fatalities;
 
  •     increased or unexpected reclamation costs; and
 
  •     the inability to monitor our operations due to failures of information technology systems.
 
If any of the foregoing changes, conditions or events occurs and is not excusable as a force majeure event, any resulting failure on our part to deliver coal to the purchaser under a long-term sales contracts could result in economic penalties, suspension or cancellation of shipments or ultimately termination of the agreement, any of which could have a material adverse effect on our business, financial condition or results of operations. For more information regarding our long-term coal sales contracts, please read “Business — Customers — Long-Term Coal Sales Contracts.”
 
We maintain insurance coverage for some but not all potential risks we face. We generally do not carry business interruption insurance and we may elect not to carry other types of insurance in the future. In addition, it is not possible to insure fully against safety, pollution and environmental risks. The occurrence of a significant accident or other event that is not fully covered by insurance could have a material adverse effect on our business, financial condition or results of operations.
 
 
In January 2007, we entered into a joint venture, Harrison Resources, with CONSOL Energy. Pursuant to its operating agreement, all members of Harrison Resources must approve cash distributions, other than tax distributions, to its members. The members of Harrison Resources have consistently approved cash


28


Table of Contents

distributions from Harrison Resources on a quarterly basis, including an aggregate of $6.4 million in distributions to us during 2009 and $1.5 million in distributions to us in April 2010. In the future, however, there can be no assurance that we will receive regular cash distributions from Harrison Resources.
 
CONSOL Energy controls the vast majority of the additional reserves in Harrison County, Ohio that could be acquired by Harrison Resources in the future. However, CONSOL Energy has no obligation to sell those reserves to Harrison Resources, and we cannot assure you that Harrison Resources could acquire those reserves from CONSOL Energy on acceptable terms. As a result, the growth of, and therefore our ability to receive future distributions from, Harrison Resources may be limited, which could have a material adverse effect on our ability to make cash distributions to our unitholders.
 
 
In June 2005, we sold our underground mining operations at the Tusky mining complex to an independent coal producer and subleased our underground coal reserves to this producer in exchange for an overriding royalty equal to a percentage of the sales price received for the coal produced and sold. For the year ended December 31, 2009 and the first quarter of 2010, we received royalty income on our underground coal reserves of approximately $4.5 million and $0.9 million, respectively, or approximately 8.9% and 9.1% of our Adjusted EBITDA, respectively. The royalty payments we receive could be adversely affected by any of the following:
 
  •     a substantial and extended decline in the sales price for coal produced from our underground coal reserves;
 
  •     any decisions by our sublessee to reduce or discontinue production or sales of coal produced from our underground coal reserves;
 
  •     any failure by our sublessee to properly manage its operations;
 
  •     our sublessee’s operational risks relating to our underground coal reserves, which expose our sublessee to operating conditions and events beyond its control, including the inability to acquire necessary permits, changes or variations in geologic conditions, changes in governmental regulation of the coal industry or the electric power industry, mining and processing equipment failures and unexpected maintenance problems, interruptions due to transportation delays, adverse weather and natural disasters, labor-related interruptions and fires and explosions; and
 
  •     a material decline in the creditworthiness of our sublessee, including as a result of the current economic downturn.
 
If the royalty payments we receive from our sublessee are reduced, our ability to make cash distributions to our unitholders could be adversely affected.
 
 
We use considerable quantities of diesel fuel in our mining operations. Even though we hedge a portion of our diesel fuel needs, if the price of diesel fuel increases significantly, our operating expenses will increase, which could have a material adverse effect on our profitability. A significant amount of explosives are used in our mining operations. We use third party contractors to provide blasting services, and they generally pass through to us the cost of explosives, which are subject to fluctuations. Additionally, a limited number of suppliers exist for explosives, and any of these suppliers may divert their products to other buyers. Shortages in raw materials used in the manufacturing of explosives or the cancellation of supply contracts under which these raw materials are obtained, could increase the prices and limit the ability of our contractors to obtain these supplies.


29


Table of Contents

 
The coal mining industry is subject to increasingly strict federal, state and local environmental and mining safety laws and regulations. The enforcement of laws and regulations governing the coal mining industry has substantially increased, due in part to recent accidents at certain underground mines. Violations can result in administrative, civil and criminal penalties and a range of other possible sanctions. The recent fatal mining accident in West Virginia received national attention and led to responses at the state and national levels that may further increase mine safety regulation, reporting requirements, inspection and enforcement, particularly underground mining operations. New legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations, including proposals related to the protection of the environment that would further regulate and tax the coal industry, may also require us to change operations significantly or incur increased costs and be subject to more adverse consequences for non-compliance. Such changes could have a material adverse effect on our business, financial condition or results of operations. Please read “Business — Regulation and Laws.”
 
 
As is typical in the coal industry, our coal production is dependent on our ability to obtain various federal and state permits and approvals to mine our coal reserves within the timeline specified in our surface mining plan. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by regulators, which may increase the costs or possibly preclude the continuance of ongoing mining operations or the development of future mining operations. In addition, the public, including non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to comment upon and otherwise impact the permitting process, including through court intervention. The slowing pace at which necessary permits are issued or renewed for new and existing mines has materially impacted coal production, especially in Central Appalachia. Permitting by the Army Corps of Engineers, or the Corps, the EPA and the Department of the Interior has become subject to “enhanced review” under both the Surface Mining Control and Reclamation Act of 1977, or SMCRA, and the federal Clean Water Act, or CWA, to reduce the harmful environmental consequences of mountain-top mining, especially in the Appalachian region. Moreover, on April 1, 2010, the EPA issued interim final guidance substantially revising the environmental review of CWA permits by state and federal agencies.
 
Based on our current surface mining plan, we have proven and probable coal reserves with active permits that will allow us to mine for approximately three years. Typically, we submit the necessary permit applications 12 to 30 months before we plan to mine a new area. Some of our required mining permits are becoming increasingly difficult to obtain in a timely manner, or at all, and in some instances we have had to abandon or substantially delay the mining of coal in certain areas covered by the application in order to obtain required permits and approvals. For example, one of our permit applications that covers 0.6 million tons of our coal reserves is currently being reviewed by the EPA under its enhanced review procedures even though the mining activities in question do not utilize mountain-top mining, a method of mining we do not employ. Additional permits could be delayed in the future if the EPA continues its enhanced review of CWA applications. If the required permits are not issued or renewed in a timely fashion or at all, or if permits issued or renewed are conditioned in a manner that restricts our ability to efficiently and economically conduct our mining activities, we could suffer a material reduction in our production, and our operations and there could be a material adverse effect on our ability to make cash distributions to our unitholders. Please read “Business — Regulation and Laws.”
 
 
SMCRA and counterpart state laws and regulations establish reclamation and closure standards for surface mining. As of December 31, 2009, we had accrued a reserve of approximately $13.3 million for future reclamation and mine-closure liabilities. The estimate of ultimate reclamation liability is reviewed periodically


30


Table of Contents

by our management and engineers. Our estimated reclamation and mine closure obligations could change significantly if actual results change from our assumptions, which could have a material adverse effect on our financial condition or results of operations. Please read Note 2 to our historical consolidated financial statements included elsewhere in this prospectus under the heading “Asset Retirement Obligation” for more information regarding our reclamation and mine closure obligations.
 
 
Our future level of debt could have important consequences to us, including the following:
 
  •     our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;
 
  •     our funds available for operations, future business opportunities and distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt;
 
  •     we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
 
  •     our flexibility in responding to changing business and economic conditions may be limited.
 
Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. We may not be able to effect any of these actions on satisfactory terms or at all.
 
 
We expect to enter into a new credit facility concurrently with the closing of the offering. Our new credit facility will limit our ability to, among other things:
 
  •     incur additional debt;
 
  •     make distributions on or redeem or repurchase units;
 
  •     make certain investments and acquisitions;
 
  •     incur certain liens or permit them to exist;
 
  •     enter into certain types of transactions with affiliates;
 
  •     merge or consolidate with another company; and
 
  •     transfer or otherwise dispose of assets.
 
Our new credit facility also will contain covenants requiring us to maintain certain financial ratios. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility.”
 
The provisions of our new credit facility may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our new credit facility could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our unitholders could experience a partial or total loss of their investment.


31


Table of Contents

 
Our operations use hazardous materials, generate limited quantities of hazardous wastes and may affect runoff or drainage water. In the event of environmental contamination or a release of hazardous materials, we could become subject to claims for toxic torts, natural resource damages and other damages and for the investigation and clean up of soil, surface water, groundwater, and other media, as well as abandoned and closed mines located on property we operate. Such claims may arise out of conditions at sites that we currently own or operate, as well as at sites that we previously owned or operated, or may acquire. Our liability for such claims may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share. These and other impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could have a material adverse effect on us. Please read “Business — Regulation and Laws.”
 
We maintain coal refuse areas and slurry impoundments at our Tuscarawas County and Muhlenberg County mining complexes. Such areas and impoundments are subject to extensive regulation. One of those impoundments overlies a mined out area, which can pose a heightened risk of structural failure and of damages arising out of such failure. When a slurry impoundment experiences a structural failure, it could release large volumes of coal slurry into the surrounding environment, which in turn can result in extensive damage to the environment and natural resources, such as bodies of water. A failure may also result in civil or criminal fines, penalties, personal injuries and property damages, and damage to wildlife or natural resources.
 
 
Our ability to operate our business and implement our strategies depends on the continued contributions of Charles C. Ungurean and other executive officers and key employees of our general partner. In particular, we depend significantly on Mr. Ungurean’s long-standing relationships within our industry. The loss of any of our senior executives, and Mr. Ungurean in particular, could have a material adverse effect on our business. In addition, we believe that our future success will depend on our continued ability to attract and retain highly skilled management personnel with coal industry experience and competition for these persons in the coal industry is intense. We may not be able to continue to employ key personnel or attract and retain qualified personnel in the future, and our failure to retain or attract key personnel could have a material adverse effect on our ability to effectively operate our business.
 
 
Efficient coal mining using modern techniques and equipment requires skilled laborers in multiple disciplines such as equipment operators, mechanics and engineers, among others. We have from time to time encountered shortages for these types of skilled labor. If we experience shortages of skilled labor in the future, our labor and overall productivity or costs could be materially and adversely affected. If coal prices decrease in the future or our labor prices increase, or if we experience materially increased health and benefit costs with respect to our general partner’s employees, our results of operations could be materially and adversely affected.
 
 
All of our mines are operated by non-union employees of our general partner. Our employees have the right at any time under the National Labor Relations Act to form or affiliate with a union. If our employees choose to form or affiliate with a union and the terms of a union collective bargaining agreement are significantly different from our current compensation and job assignment arrangements with our employees, these arrangements could adversely affect the stability of our production and materially reduce our profitability.


32


Table of Contents

 
Our future performance depends on, among other things, the accuracy of the estimates of our proven and probable coal reserves. Please read “Business — Coal Reserves” for more information on the preparation of our reserves estimates. There are numerous factors and assumptions inherent in estimating the quantities and qualities of, and costs to mine, coal reserves, any one of which may vary considerably from actual results. These factors and assumptions include:
 
  •     quality of the coal;
 
  •     geologic and mining conditions, which may not be fully identified by available exploration data or may differ from our experiences in areas where we currently mine;
 
  •     the percentage of coal ultimately recoverable;
 
  •     the assumed effects of regulation, including the issuance of required permits, and taxes, including severance and excise taxes and royalties, and other payments to governmental agencies;
 
  •     assumptions concerning the timing for the development of reserves; and
 
  •     assumptions concerning equipment and productivity, future coal prices, operating costs, including for critical supplies such as fuel, tires and explosives, capital expenditures and development and reclamation costs.
 
As a result, estimates of the quantities and qualities of economically recoverable coal attributable to any particular group of properties, classifications of reserves based on risk of recovery, estimated cost of production, and estimates of future net cash flows expected from these properties as prepared by different engineers and accounting personnel, or by the same engineers and accounting personnel at different times, may vary materially due to changes in the above factors and assumptions. Actual production recovered from identified reserve areas and properties, and revenues and expenditures associated with our mining operations, may vary materially from estimates. Any inaccuracy in the estimates related to our reserves could have a material adverse effect on our ability to make cash distributions.
 
 
Our ability to receive payment for the coal we sell depends on the continued creditworthiness of our customers. The current economic volatility and tightening credit markets increase the risk that we may not be able to collect payments from our customers. A continuation or worsening of current economic conditions or other prolonged global or U.S. recessions could also impact the creditworthiness of our customers.
 
If the creditworthiness of a customer declines, this would increase the risk that we may not be able to collect payment for all of the coal we sell to that customer. If we determine that a customer is not creditworthy, we may not be required to deliver coal under the customer’s coal sales contract. If we are able to withhold shipments, we may decide to sell the customer’s coal on the spot market, which may be at prices lower than the contract price, or we may be unable to sell the coal at all. Furthermore, the bankruptcy of any of our customers could have a material adverse effect on our financial position. In addition, competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk of payment default.
 
In addition, we sell some of our coal to coal brokers who may resell our coal to end users, including utilities. These coal brokers may have only limited assets, making them less creditworthy than the end users. Under some of these arrangements, we have contractual privity only with the brokers and may not be able to pursue claims against the end users in connection with these sales if we do not receive payment from the broker. In 2009, approximately 12% of our sales were to coal brokers, and we expect our sales through coal brokers to increase in 2010.


33


Table of Contents

 
Federal and state laws require us to secure the performance of certain long-term obligations, such as mine closure or reclamation costs. The amount of these security arrangements is substantial, with total amounts of surety bonds at March 31, 2010 of approximately $32.4 million, which were supported by letters of credit of $7.5 million. Certain business transactions, such as coal leases and other obligations, may also require bonding. Our bonding requirements could increase in the future. We may have difficulty procuring or maintaining our surety bonds. Our bond issuers may demand higher fees, additional collateral, including putting up letters of credit or posting cash collateral, or other terms less favorable to us upon those renewals. Our ability to obtain or renew our surety bonds could be impacted by a variety of other factors including lack of availability, unfavorable market terms, the exercise by third-party surety bond issuers of their right to refuse to renew the surety bonds and restrictions on availability of collateral for current and future third-party surety bond issuers under the terms of any credit arrangements then in place. Due to current economic conditions and the volatility of the financial markets, surety bond providers may be less willing to provide us with surety bonds or maintain existing surety bonds and we may have greater difficulty satisfying the liquidity requirements under our existing surety bond contracts. If we do not maintain sufficient borrowing capacity or have other resources to satisfy our surety and bonding requirements, our operations and cash available for distribution to our unitholders could be adversely affected.
 
 
Our partnership agreement requires our general partner to deduct from operating surplus each quarter estimated reserve replacement expenditures as opposed to actual reserve replacement expenditures in order to reduce disparities in operating surplus caused by fluctuating reserve replacement costs. Our initial annual estimated reserve replacement expenditures for purposes of calculating operating surplus will be $5.6 million. This amount is based on our current estimates of the amounts of expenditures we will be required to make in future years to maintain our depleting reserve base, which we believe to be reasonable. This amount has been taken into consideration in calculating our forecast of cash available for distribution in “Cash Distribution Policy and Restrictions on Distributions.” In the future our estimated reserve replacement expenditures may be more than our actual reserve replacement expenditures, which will reduce the amount of available cash from operating surplus that we would otherwise have available for distribution to unitholders. The amount of estimated reserve replacement expenditures deducted from operating surplus is subject to review and change by the board of directors of our general partner at least once a year, subject to approval by the conflicts committee of the board of directors of our general partner, or the Conflicts Committee.
 
 
Our management team does not have experience managing our business as a publicly traded partnership. If we are unable to manage and operate our partnership as a publicly traded partnership, our business and results of operations will be adversely affected.
 
 
We are in the process of evaluating our internal controls systems to allow management to report on, and our independent auditors to audit, our internal controls over financial reporting. We are also in the process of performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We will be required to comply with Section 404 for the year ending December 31, 2011.


34


Table of Contents

However, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations. Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board rules and regulations that remain unremediated. As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency or combination of deficiencies in internal controls over financial reports that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. In connection with the audit of our financial statements, a “significant deficiency” in our internal controls was identified that related to 2008. This significant deficiency related to the timeliness and thoroughness of our account reconciliation and review procedures. Management has taken steps to remediate this significant deficiency by restructuring and refining its account reconciliation process and tracking. However, we may have additional significant deficiencies in the future. A “significant deficiency” is a deficiency or combination of deficiencies that is less severe than a material weakness.
 
If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities such as the SEC. In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our consolidated financial statements, and as a result our unit price may be adversely affected. If we fail to remedy any material weakness, our consolidated financial statements may be inaccurate, we may face restricted access to the capital markets and our unit price may be adversely affected.
 
 
Terrorist attacks and threats, escalation of military activity or acts of war may have significant effects on general economic conditions, fluctuations in consumer confidence and spending and market liquidity, each of which could materially and adversely affect our business. Future terrorist attacks, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions affecting our customers may significantly affect our operations and those of our customers. Strategic targets, such as energy-related assets and transportation assets, may be at greater risk of future terrorist attacks than other targets in the United States. Disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations.
 
Risks Inherent in an Investment in Us
 
 
Fiduciary duties owed to our unitholders by our general partner are prescribed by law and the partnership agreement. The Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, provides that Delaware limited partnerships may, in their partnership agreements, restrict the fiduciary duties owed by the general partner to limited partners and the partnership. Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:
 
  •     limits the liability and reduces the fiduciary duties of our general partner, while also restricting the remedies available to our unitholders for actions that, without these limitations, might constitute breaches of fiduciary duty. As a result of purchasing common units, our unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law;


35


Table of Contents

  •     permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our 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. Examples include the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of the partnership;
 
  •     provides that our general partner shall not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning our general partner honestly believed that the decision was in the best interests of the partnership;
 
  •     generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the Conflicts Committee and not involving a vote of our unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and
 
  •     provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct.
 
By purchasing a common unit, a common unitholder will become bound by the provisions of the partnership agreement, including the provisions described above. Please read “Description of the Common Units — Transfer of Common Units.”
 
 
Following the offering, C&T Coal will own a 18.8% limited partner interest in us (or a 16.7% limited partner interest in us if the underwriters exercise their option to purchase additional common units in full), AIM Oxford will own a 36.9% limited partner interest in us (or a 32.8% limited partner interest in us if the underwriters exercise their option to purchase additional common units in full), and C&T Coal and AIM Oxford will own and control our general partner and its 2.0% general partner interest in us. Although our general partner has certain fiduciary duties to manage us in a manner beneficial to us and our unitholders, the executive officers and directors of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to its owners. Furthermore, since certain executive officers and directors of our general partner are executive officers or directors of affiliates of our general partner, conflicts of interest may arise between C&T Coal and AIM Oxford and their affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. Please read “— Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to our unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.” The risk to our unitholders due to such conflicts may arise because of the following factors, among others:
 
  •     our general partner is allowed to take into account the interests of parties other than us, such as C&T Coal and AIM Oxford, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
 
  •     neither our partnership agreement nor any other agreement requires owners of our general partner to pursue a business strategy that favors us. Executive officers and directors of our general partner’s owners have a fiduciary duty to make these decisions in the best interest of their owners, which may be contrary to our interests;


36


Table of Contents

  •     our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders;
 
  •     our general partner determines our estimated reserve replacement expenditures, which reduce operating surplus, and that determination can affect the amount of cash that is distributed to our unitholders and the ability of the subordinated units to convert to common units;
 
  •     in some instances, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination periods;
 
  •     our general partner determines which costs incurred by it and its affiliates are reimbursable by us;
 
  •     our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf;
 
  •     our general partner intends to limit its liability regarding our contractual and other obligations;
 
  •     our general partner may exercise its limited right to call and purchase common units if it and its affiliates own more than 80.0% of the common units;
 
  •     our general partner controls the enforcement of obligations owed to us by it and its affiliates; and
 
  •     our general partner decides whether to retain separate counsel, accountants or others to perform services for us.
 
In addition, AIM currently holds substantial interests in other companies in the energy and natural resource sectors. Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as our general partner and those activities incidental to its ownership interest in us. However, AIM and AIM Oxford are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. As a result, they could potentially compete with us for acquisition opportunities and for new business or extensions of the existing services provided by us. Please read “Conflicts of Interest and Fiduciary Duties — Conflicts of Interest — AIM Oxford and AIM, affiliates of our general partner, may compete with us.”
 
Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our general partner or any of its affiliates, including its executive officers, directors and owners. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our unitholders. Please read “Conflicts of Interest and Fiduciary Duties.”
 
 
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. Our unitholders will have no right to elect our general partner or its board of directors on an annual or other continuing basis. The board of directors of our general partner is chosen entirely by its members and not by our unitholders. Furthermore, if our unitholders are dissatisfied with the performance of our general partner, they will have limited ability to remove our general partner.


37


Table of Contents

Our unitholders will be unable initially to remove our general partner without its consent because affiliates of our general partner will own sufficient units upon the consummation of this offering to be able to prevent removal of our general partner. The vote of the holders of at least 80.0% of all outstanding common units and subordinated units voting together as a single class is required to remove our general partner. Following the closing of this offering, affiliates of our general partner will own 57.1% of our common units and subordinated units (or 50.7% of our common units and subordinated units, if the underwriters exercise their option to purchase additional common units in full). Also, if our general partner is removed without cause during the subordination period and units held by our general partner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically be converted into common units and any existing arrearages on the common units will be extinguished. A removal of our general partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests.
 
Cause is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable for actual fraud or willful misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business, so the removal of our general partner during the subordination period because of our unitholders’ dissatisfaction with our general partner’s performance in managing our partnership will most likely result in the termination of the subordination period. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.
 
 
Our initial public offering price of $18.50 per common unit exceeds pro forma net tangible book value of $5.57 per common unit. As a result, our unitholders will incur immediate and substantial dilution of $12.93 per common unit. This dilution results primarily because the assets contributed to us by affiliates of our general partner are recorded at their historical cost and not their fair value. Please read “Dilution.”
 
 
Our general partner may transfer its general partner interest in us to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of the members of our general partner to transfer their respective membership interests in our general partner to a third party. The new members of our general partner would then be in a position to replace the board of directors and executive officers of our general partner with their own choices and to control the decisions and actions of the board of directors and executive officers of our general partner.
 
 
Our general partner may transfer its incentive distribution rights to a third party at any time without the consent of our unitholders. If our general partner transfers its incentive distribution rights to a third party but retains its general partner interest, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if it had retained ownership of its incentive distribution rights.
 
 
Upon consummation of this offering, C&T Coal and AIM Oxford will own an aggregate of 56.8% of our common units and subordinated units (or 50.4% of our common units and subordinated units, if the underwriters exercise their option to purchase additional common units in full). If at any time our general partner and its affiliates own more than 80.0% of the common units, our general partner will have the right,


38


Table of Contents

but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than the then-current market price. As a result, our unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment. Our unitholders may also incur a tax liability upon a sale of their common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its limited call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the common units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act. For additional information about the limited call right, please read “The Partnership Agreement — Limited Call Right.”
 
 
At any time, we may issue an unlimited number of limited partner interests of any type without the approval of our unitholders. Further, our partnership agreement does not prohibit the issuance of equity securities that may effectively rank senior to our common units. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:
 
  •     our unitholders’ proportionate ownership interest in us will decrease;
 
  •     the amount of cash available for distribution on each unit may decrease;
 
  •     because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
 
  •     the relative voting strength of each previously outstanding unit may be diminished; and
 
  •     the market price of the common units may decline.
 
 
Our general partner has the right, at any time when there are no subordinated units outstanding and it has received distributions on its incentive distribution rights at the highest level to which it is entitled (48.0%) for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.
 
If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units and general partner units. The number of common units to be issued to our general partner will be equal to that number of common units that would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to our general partner on the incentive distribution rights in the prior two quarters. Our general partner will be issued the number of general partner units necessary to maintain our general partner’s interest in us that existed immediately prior to the reset election. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive distributions on its incentive distribution rights based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units and general partner units to our general partner in connection


39


Table of Contents

with resetting the target distribution levels. Please read “How We Make Cash Distributions — General Partner’s Right to Reset Incentive Distribution Levels.”
 
 
Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur on our behalf, which will be determined by our general partner in its sole discretion in accordance with the terms of our partnership agreement. In determining the costs and expenses allocable to us, our general partner is subject to its fiduciary duty, as modified by our partnership agreement, to the limited partners, which requires it to act in good faith. These expenses will include all costs incurred by our general partner and its affiliates in managing and operating us. We are managed and operated by executive officers and directors of our general partner. Please read “Cash Distribution Policy and Restrictions on Distributions,” “Certain Relationships and Related Party Transactions” and “Conflicts of Interest and Fiduciary Duties — Conflicts of Interest.” The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce the amount of available cash for distribution to our unitholders.
 
 
Prior to the offering, there has been no public market for the common units. After the offering, there will be only 8,750,000 publicly traded common units (or 10,062,500 publicly traded common units, if the underwriters exercise their option to purchase additional common units in full). We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. Our unitholders may not be able to resell their common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units. The initial public offering price for the common units has been determined by negotiations between us and the representative of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:
 
  •     our quarterly distributions;
 
  •     our quarterly or annual earnings or those of other companies in our industry;
 
  •     loss of a large customer;
 
  •     announcements by us or our competitors of significant contracts or acquisitions;
 
  •     changes in accounting standards, policies, guidance, interpretations or principles;
 
  •     changes in interest rates;
 
  •     general economic conditions;
 
  •     the failure of securities analysts to cover our common units after this offering or changes in financial estimates by analysts; and
 
  •     the other factors described in these “Risk Factors.”
 
In addition, the market price of our common units could decline as a result of sales of a large number of our common units in the public markets after this offering. We, our subsidiaries, our general partner and its affiliates, including C&T Coal and AIM Oxford, and the directors and executive officers of our general partner have entered into “lock-up” agreements with the underwriters, as described in the section entitled “Underwriting — Lock-Up Agreements.” The lock-up agreements cover 1,458,800 common units or 14.2% of the total number of common units that will be outstanding upon completion of this offering. The common units subject to these lock-up agreements will be restricted from immediate resale but may be sold into the


40


Table of Contents

market after those restrictions expire, which will be at least 180 days after the date of this prospectus. However, Barclays Capital Inc. and Citigroup Global Markets Inc., in their sole discretion, may release the common units subject to the lock-up agreements in whole or in part at any time with or without notice.
 
 
We have no history operating as a publicly traded partnership. As a publicly traded partnership, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We expect that complying with the rules and regulations implemented by the SEC and the New York Stock Exchange will increase our legal and financial compliance costs and make activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have three independent directors, create additional board committees and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our publicly traded partnership reporting requirements.
 
 
Our general partner may require each limited partner to furnish information about his nationality, citizenship or related status. If a limited partner fails to furnish information about his nationality, citizenship or other related status within 30 days after a request for the information or our general partner determines after receipt of the information that the limited partner is not an eligible citizen, the limited partner may be treated as a non-citizen assignee. A non-citizen assignee does not have the right to direct the voting of his units and may not receive distributions in kind upon our liquidation. Furthermore, we have the right to redeem all of the common units and subordinated units of any holder that is not an eligible citizen or fails to furnish the requested information. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner. Please read “The Partnership Agreement — Non-Citizen Assignees; Redemption.”
 
 
Under certain circumstances, our unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware 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, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Purchasers of units who become limited partners are liable for the obligations of the transferring limited partner to make contributions to the partnership that are known to the purchaser of units at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
 
Tax Risks
 
In addition to reading the following risk factors, please read “Material Federal Income Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of common units.


41


Table of Contents

 
The anticipated after-tax economic benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested, and do not plan to request, a ruling from the IRS on this or any other tax matter affecting us.
 
Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.
 
If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35.0%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxed again as corporate distributions (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions, or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Therefore, if we were treated as a corporation for federal income tax purposes there would be material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.
 
Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.
 
 
Changes in current state law may subject us to additional entity-level taxation by individual states. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes may substantially reduce the cash available for distribution to you. Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.
 
 
The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. Recently, members of the U.S. Congress have considered substantive changes to the existing federal income tax laws that affect certain publicly traded partnerships, which, if enacted, may or may not be applied retroactively. Any such changes could negatively impact the value of an investment in our common units.
 
 
Among the changes contained in President Obama’s Budget Proposal for Fiscal Year 2011, or the Budget Proposal, is the elimination of certain key U.S. federal income tax preferences relating to coal exploration and development. The Budget Proposal would (i) eliminate current deductions and the 60-month amortization for exploration and development costs relating to coal and other hard mineral fossil fuels, (ii) repeal the percentage depletion allowance with respect to coal properties, (iii) repeal capital gains treatment of coal and lignite royalties, and (iv) exclude from the definition of domestic production gross receipts all gross receipts derived from the sale, exchange, or other disposition of coal, other hard mineral fossil fuels, or primary


42


Table of Contents

products thereof. The passage of any legislation as a result of the Budget Proposal or any other similar changes in U.S. federal income tax laws could eliminate certain tax deductions that are currently available with respect to coal exploration and development, and any such change could increase the taxable income allocable to our unitholders and negatively impact the value of an investment in our common units.
 
 
Because a unitholder will be treated as a partner to whom we will allocate taxable income which could be different in amount than the cash we distribute, a unitholder’s allocable share of our taxable income will be taxable to it, which may require the payment of federal income taxes and, in some cases, state and local income taxes on its share of our taxable income even if it receives no cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.
 
 
We have not requested a ruling from the Internal Revenue Service, or the IRS, with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take and such positions may not ultimately be sustained. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS, and the outcome of any IRS contest, may have a materially adverse impact on the market for our common units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our cash available for distribution.
 
 
If you sell your common units, you will recognize a gain or loss for federal income tax purposes equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income decrease your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the common units you sell will, in effect, become taxable income to you if you sell such common units at a price greater than your tax basis in those common units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized on any sale of your common units, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if you sell your common units, you may incur a tax liability in excess of the amount of cash you receive from the sale. Please read “Material Federal Income Tax Consequences — Disposition of Common Units — Recognition of Gain or Loss” for a further discussion of the foregoing.
 
 
Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult a tax advisor before investing in our common units.


43


Table of Contents

 
Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. Our counsel is unable to opine as to the validity of such filing positions. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. Please read “Material Federal Income Tax Consequences — Tax Consequences of Unit Ownership — Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we will adopt.
 
 
We will prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations, and, accordingly, our counsel is unable to opine as to the validity of this method. If the IRS were to challenge this method or new Treasury regulations were issued, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. Please read “Material Federal Income Tax Consequences — Disposition of Common Units — Allocations Between Transferors and Transferees.”
 
 
Because a unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of the loaned common units, he may no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Our counsel has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to cover a short sale of common units; therefore, our unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their common units.
 
 
When we issue additional units or engage in certain other transactions, we will determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and our general partner, which may be unfavorable to such unitholders. Moreover, under our valuation methods,


44


Table of Contents

subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and allocations of taxable income, gain, loss and deduction between our general partner and certain of our unitholders.
 
A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of taxable gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
 
 
We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two Schedules K-1 if relief was not available, as described below) for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead we would be treated as a new partnership for tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. The IRS has recently announced a publicly traded partnership technical termination relief program whereby, if a publicly traded partnership that technically terminated requests publicly traded partnership technical termination relief and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years. Please read “Material Federal Income Tax Consequences — Disposition of Common Units — Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.
 
 
In addition to federal income taxes, our unitholders will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. We initially expect to conduct business in Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. Each of these states currently imposes a personal income tax on individuals. As we make acquisitions or expand our business, we may control assets or conduct business in additional states that impose a personal income tax. It is your responsibility to file all U.S. federal, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units.


45


Table of Contents

 
USE OF PROCEEDS
 
We expect to receive net proceeds of approximately $150.5 million, after deducting underwriting discounts and commissions and structuring fees but before paying offering expenses, from the issuance and sale of common units offered by this prospectus. We will use the net proceeds from this offering to:
 
  •     repay in full the outstanding balance under our existing credit facility, which was approximately $96.5 million at July 13, 2010;
 
  •     distribute approximately $18.3 million to C&T Coal in respect of its limited partner interest in us;
 
  •     distribute approximately $0.6 million to the participants in our LTIP that hold our common units in respect of their limited partner interests in us;
 
  •     terminate our advisory services agreement with affiliates of AIM for a payment of approximately $2.5 million;
 
  •     pay offering expenses of approximately $3.1 million; and
 
  •     purchase currently leased and additional major mining equipment for approximately $22.1 million.
 
We will retain the remaining net proceeds from this offering to replenish approximately $7.4 million of our working capital. Please read “Summary — The Transactions.”
 
The table below sets forth our anticipated use of the net proceeds from this offering.
 
                 
    Application of
   
    Net Proceeds of
  Percentage of
    this Offering   Net Proceeds
    (in thousands)
 
Repayment of our existing credit facility
  $ 96,517       64.1 %
Distribution to C&T Coal
    18,279       12.1  
Distribution to LTIP participants
    578       0.4  
Termination of advisory services agreement
    2,500       1.7  
Payment of offering expenses
    3,125       2.1  
Purchase of currently leased and additional major mining equipment
    22,100       14.7  
Replenish working capital
    7,445       4.9  
                 
Total
  $ 150,544       100.0 %
                 
 
Immediately following the repayment of the outstanding balance under our existing credit facility with the net proceeds of this offering, we will enter into a new credit facility, and we will borrow approximately $86.0 million under that credit facility. We will use the proceeds from that borrowing to:
 
  •     distribute approximately $35.9 million to AIM Oxford in respect of its limited partner interest in us;
 
  •     pay fees and expenses relating to our new credit facility of approximately $5.3 million;
 
  •     distribute approximately $1.1 million to our general partner in respect of its general partner interest in us;
 
  •     replenish approximately $11.6 million of our working capital; and
 
  •     purchase currently leased and additional major mining equipment for approximately $32.1 million.
 
A portion of the amounts to be repaid under our existing credit facility with the net proceeds of this offering were used to finance our acquisition of the surface mining operations of Phoenix Coal in September 2009. As of July 13, 2010, we had approximately $96.5 million of indebtedness outstanding under our existing credit facility. This indebtedness had a weighted average interest rate of 9.2% as of July 13, 2010. Our existing credit facility matures in August 2012.


46


Table of Contents

The LTIP participants that will receive the approximately $0.6 million described above consist of Gerald A. Tywoniuk, one of our independent directors, our executive officers (excluding Charles C. Ungurean and Thomas T. Ungurean) and certain key employees.
 
The proceeds from any exercise of the underwriters’ option to purchase additional common units will be used to redeem from C&T Coal and AIM Oxford that number of common units that corresponds to the number of common units issued upon such exercise, at a price per common unit equal to the proceeds per common unit before expenses but after underwriting discounts and structuring fees.
 
An affiliate of Citigroup Global Markets Inc. is a lender under our existing credit facility and will receive its proportionate share of the repayment of the outstanding balance under our existing credit facility by us in connection with this offering. Please read “Underwriting — Relationships/FINRA Conduct Rules.”


47


Table of Contents

 
CAPITALIZATION
 
The following table shows:
 
  •     our historical capitalization, as of March 31, 2010; and
 
  •     our pro forma, as adjusted capitalization as of March 31, 2010, giving effect to:
 
  •     our entry into our new credit facility and the repayment of all outstanding indebtedness under our existing credit facility;
 
  •     our receipt of net proceeds of $150.5 million from the issuance and sale of 8,750,000 common units to the public at an initial offering price of $18.50 per unit;
 
  •     the application of the net proceeds from this offering in the manner described in “Use of Proceeds”; and
 
  •     the other transactions described in “Summary — The Transactions.”
 
We derived this table from and it should be read in conjunction with and is qualified in its entirety by reference to the unaudited historical and pro forma consolidated financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
                 
    As of March 31, 2010  
          Pro Forma,
 
    Actual     As Adjusted  
    (in thousands)  
 
Cash and cash equivalents
  $ 1,290     $ 23,317(1 )
                 
Long-term debt (including current maturities):
               
Existing credit facility(2)
    93,517        
New credit facility(3)
          86,000  
Other debt
    4,915       4,915  
                 
Total long-term debt (including current maturities)
  $ 98,432     $ 90,915  
                 
Partners’ capital:
               
Limited partners:
               
Common unitholders — public
          145,276  
Common unitholders — LTIP
    962       (292 )
Common unitholders — sponsors
    50,158       (3,344 )
Subordinated unitholders — sponsors
          (24,489 )
General partner
    1,048       (570 )
                 
Total Oxford Resource Partners, LP partners’ capital
    52,168       116,581  
Noncontrolling interest
    3,695       3,695  
                 
Total partners’ capital
    55,863       120,276  
                 
Total capitalization
  $ 154,295     $ 211,191  
                 
 
 
(1) This amount includes cash retained from the transactions described in “Use of Proceeds” to replenish working capital. As described in note (2) below, subsequent to March 31, 2010 we have made an additional $3.0 million of borrowings under our existing credit facility as of July 13, 2010. Because we will repay all outstanding borrowings under our existing credit facility with the proceeds of this offering, this $3.0 million increase in borrowings as of July 13, 2010 would result in a corresponding decrease in cash and cash equivalents of the same amount as of such date.
 
(2) As of July 13, 2010, we had $96.5 million of borrowings under our existing credit facility. This amount does not include $8.2 million of letters of credit that were outstanding under our existing credit facility as of July 13, 2010.
 
(3) This amount does not include $6.9 million in outstanding letters of credit that will be issued under our new credit facility.


48


Table of Contents

 
DILUTION
 
Dilution is the amount by which the offering price will exceed the net tangible book value per unit after the offering. Net tangible book value is our total tangible assets less tangible liabilities. Tangible assets are our total assets less intangible assets, which are customer relationships and deferred financing costs. Tangible liabilities are our total liabilities less intangible liabilities, which are our below market coal sales contracts. On a pro forma basis as of March 31, 2010, after giving effect to our entry into our new credit facility and repayment of all outstanding indebtedness under our existing credit facility, the issuance and sale of 8,750,000 common units, the other transactions described in “Summary — The Transactions” and the application of the net proceeds from this offering in the manner described in “Use of Proceeds,” our net tangible book value was approximately $116.9 million, or $5.57 per common unit. The pro forma tangible net book value excludes $5.3 million of deferred financing costs. Purchasers of common units in this offering will experience substantial and immediate dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.
 
                 
Initial public offering price per common unit
              $ 18.50  
Net tangible book value per common unit before the offering(1)
  $ 4.61          
Increase in net tangible book value per common unit attributable to purchasers in the offering
    0.96          
                 
Less: Pro forma net tangible book value per common unit after the offering(2)
            5.57  
                 
Immediate dilution in net tangible book value per common unit to purchasers in the offering
          $ 12.93  
                 
 
 
(1) Determined by dividing the net tangible book value of our assets and liabilities by the number of units (1,530,368 common units, 10,280,380 subordinated units and the 2.0% general partner interest represented by 419,607 general partner units) held by our general partner and its affiliates and the participants under our LTIP.
 
(2) Determined by dividing our pro forma net tangible book value, after giving effect to the use of the net proceeds from this offering, by the total number of units (10,280,368 common units, 10,280,380 subordinated units and the 2.0% general partner interest represented by 419,607 general partner units) to be outstanding after this offering.
 
The following table sets forth the number of units that we will issue and the total consideration contributed to us by our general partner and its affiliates and the participants under our LTIP in respect of their units and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus.
 
                                 
    Units Acquired   Total Consideration
    Number   Percent   Amount   Percent
    ($ in millions)
 
General Partner and its affiliates, and LTIP participants(1)
    12.2       58.3 %   $ 52.2       24.4 %
New Investors
    8.8       41.7 %     161.9       75.6 %
                                 
Total
    21.0       100.0 %   $ 214.1       100.0 %
                                 
 
 
(1) Upon the consummation of the transactions contemplated by this prospectus, our general partner and its affiliates, and the participants under our LTIP, will own 1,530,368 common units, 10,280,380 subordinated units and a 2.0% general partner interest represented by 419,607 general partner units.


49


Table of Contents

 
CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
 
You should read the following discussion of our cash distribution policy in conjunction with the specific assumptions included in this section. In addition, you should read “Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and regarding certain risks inherent in our business.
 
For additional information regarding our historical results of operations, you should refer to our historical audited consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009 and our historical unaudited consolidated financial statements as of and for the quarters ended March 31, 2009 and 2010 included elsewhere in this prospectus.
 
General
 
Rationale for Our Cash Distribution Policy
 
Our partnership agreement requires that we distribute all of our available cash quarterly. Under our partnership agreement, available cash is generally defined to mean, for each quarter, cash generated from our business in excess of the amount of cash reserves established by our general partner to provide for the conduct of our business, to comply with applicable law, any of our debt instruments or other agreements or to provide for future distributions to our unitholders for any one or more of the next four quarters. Our available cash may also include, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter. Our cash distribution policy reflects a basic judgment that our unitholders will be better served by distributing our available cash rather than retaining it, because, among other reasons, we believe we will generally finance any expansion capital expenditures from external financing sources. Because we are not subject to an entity-level federal income tax, we expect to have more cash to distribute than would be the case if we were subject to federal income tax.
 
Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
 
There is no guarantee that we will distribute quarterly cash distributions to our unitholders. Our cash distribution policy is subject to certain restrictions and may be changed at any time. The reasons for such uncertainties in our stated cash distribution policy include the following factors:
 
  •     Our cash distribution policy will be subject to restrictions on cash distributions under our new credit facility. Specifically, we expect our new credit facility to contain financial tests and covenants that we must satisfy before quarterly cash distributions can be paid. In addition, our ability to pay quarterly cash distributions will be restricted if an event of default has occurred under our new credit facility. The financial tests, covenants and events of default are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility.” Should we be unable to satisfy these restrictions included in our new credit facility or if we are otherwise in default under our new credit facility, we would be prohibited from making cash distributions notwithstanding our cash distribution policy.
 
  •     Our general partner will have the authority to establish cash reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of or increase in those reserves could result in a reduction in cash distributions from levels we currently anticipate pursuant to our stated cash distribution policy.
 
  •     While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions contained therein, may be amended. Our partnership agreement generally may not be amended during the subordination period without the approval of our public common unitholders other than in certain limited circumstances where no unitholder approval is required. However, after the subordination period has ended our partnership agreement may be amended with the consent of our general partner and the approval of a majority of the outstanding common units (including common units held by C&T Coal and AIM Oxford). At the closing of this offering, C&T Coal and AIM Oxford will own our general partner,


50


Table of Contents

  approximately 13.7% of our outstanding common units and all of our outstanding subordinated units. Please read “The Partnership Agreement — Amendment of Our Partnership Agreement.”
 
  •     Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement.
 
  •     Under Section 17-607 of the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.
 
  •     We may lack sufficient cash to pay distributions to our unitholders due to reduced revenues or increases in our operating costs, SG&A expenses, principal and interest payments on our outstanding debt and working capital requirements.
 
  •     If we make distributions out of capital surplus, as opposed to operating surplus, any such distributions would constitute a return of capital and would result in a reduction in the minimum quarterly distribution and the target distribution levels. Please read “How We Make Cash Distributions — Distributions from Capital Surplus.” We do not anticipate that we will make any distributions from capital surplus.
 
  •     Our ability to make distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us, including cash distributions from Harrison Resources, which requires the approval of the noncontrolling interest holder. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations.
 
We must generate approximately $36.7 million (or an average of $9.2 million per quarter) of available cash to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. We believe, based on our financial forecast and related assumptions, that we will have sufficient available cash to enable us to pay this amount for the twelve months ending June 30, 2011. However, we did not generate this amount of available cash from operating surplus during the year ended December 31, 2009 and the twelve months ended March 31, 2010. The amounts that we generated with respect to those periods were $16.1 million and $10.8 million, respectively. As a result, for the year ended December 31, 2009 and the twelve months ended March 31, 2010 we would have generated aggregate available cash sufficient to pay only 87.8% and 58.8%, respectively, of the aggregate minimum quarterly distribution on our common units during those periods, and we would not have been able to pay any distributions on our subordinated units during those periods. We have not used quarter-by-quarter estimates for each quarter in the year ended December 31, 2009 and the twelve months ended March 31, 2010 to determine if we would have generated available cash sufficient to pay the minimum quarterly distribution for each quarter during those periods.
 
Our financial forecast does not include the quarter ended June 30, 2010 and we do not have complete financial information available with respect to that quarter. However, based on the preliminary financial information we have available at this time, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. Please read “— Anticipated Cash Available for Distribution for the Quarter Ended June 30, 2010.” In addition, even though we do not provide a quarterly forecast for each quarter in the twelve months ending June 30, 2011, we expect to generate cash available for distribution for the quarter ending September 30, 2010 of approximately $6.9 million, or approximately $2.3 million less than the amount of cash needed to pay the full minimum quarterly distribution on all of our outstanding units. Please read “— Historical and Forecasted Results of Operations and Cash Available for Distribution.”
 
Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital
 
We will distribute all of our available cash to our unitholders on a quarterly basis. As a result, we expect that we will rely primarily upon external financing sources, including commercial bank borrowings and the


51


Table of Contents

issuance of debt and equity securities, to fund any future expansion capital expenditures. To the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow our asset base. In addition, because we will distribute all of our available cash, our growth may not be as fast as businesses that reinvest all of their available cash to expand ongoing operations. Our new credit facility will restrict our ability to incur additional debt, including through the issuance of debt securities. Please read “Risk Factors — Restrictions in our new credit facility could adversely affect our business, financial condition, results of operations, ability to make distributions to unitholders and value of our common units.” To the extent we issue additional units, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may impact the available cash that we have to distribute on each unit. There are no limitations in our partnership agreement, and we do not anticipate there being any limitations in our new credit facility, on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which in turn may impact the available cash that we have to distribute to our unitholders. Please read “Risk Factors — Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.”
 
Minimum Quarterly Distribution Rate
 
Upon the consummation of this offering, the board of directors of our general partner intends to establish a minimum quarterly distribution of $0.4375 per unit for each complete quarter, or $1.75 per unit on an annualized basis. Our ability to make cash distributions at the minimum quarterly distribution rate will be subject to the factors described above under “— General — Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.” Quarterly distributions, if any, will be paid within 45 days after the end of each quarter. We do not expect to make distributions with respect to the quarter ended June 30, 2010 or for the period that begins on July 1, 2010 and ends on the day prior to the closing of this offering other than the distributions to be made in connection with the closing of this offering that are described in “Summary — The Transactions” and “Use of Proceeds.” We will adjust our first distribution for the period from the closing of this offering through September 30, 2010 based on the actual length of the period. The amount of available cash needed to pay the minimum quarterly distribution on all of the common units, subordinated units and general partner units to be outstanding immediately after this offering for one quarter and for four quarters is summarized in the table below:
 
                         
    Number of Units   One Quarter   Four Quarters
 
Common units
    10,280,368     $ 4,497,661     $ 17,990,644  
Subordinated units
    10,280,380       4,497,666       17,990,665  
General partner units
    419,607       183,578       734,312  
                         
Total
    20,980,355     $ 9,178,905     $ 36,715,621  
                         
 
As of the date of this offering, our general partner will be entitled to 2.0% of all distributions that we make prior to our liquidation. Our general partner’s initial 2.0% interest in these distributions may be reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us in order to maintain its initial 2.0% general partner interest. Our general partner will also hold the incentive distribution rights, which entitle the holder to increasing percentages, up to a maximum of 48.0%, of the cash we distribute in excess of $0.6563 per unit per quarter.
 
During the subordination period, before we make any quarterly distributions to our subordinated unitholders, our common unitholders are entitled to receive payment of the full minimum quarterly distribution plus any arrearages in distributions of the minimum quarterly distribution from prior quarters. Please read “How We Make Cash Distributions — Subordination Period.” We cannot guarantee, however, that we will pay the minimum quarterly distribution on the common units in any quarter.
 
We do not have a legal obligation to pay distributions at our minimum quarterly distribution rate or at any other rate except as provided in our partnership agreement. Our partnership agreement requires that we distribute all of our available cash quarterly. Under our partnership agreement, available cash is generally defined to mean,


52


Table of Contents

for each quarter, cash generated from our business in excess of the amount of cash reserves established by our general partner to provide for the conduct of our business, to comply with applicable law, any of our debt instruments or other agreements or to provide for future distributions to our unitholders for any one or more of the next four quarters. Our available cash may also include, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter.
 
Although holders of our common units may pursue judicial action to enforce provisions of our partnership agreement, including those related to requirements to make cash distributions as described above, our partnership agreement provides that any determination made by our general partner in its capacity as our general partner must be made in good faith and that any such determination will not be subject to any other standard imposed by the Delaware Act or any other law, rule or regulation or at equity. Our partnership agreement provides that, in order for a determination by our general partner to be made in “good faith,” our general partner must have an honest belief that the determination is in our best interest. Please read “Conflicts of Interest and Fiduciary Duties.”
 
Our cash distribution policy, as expressed in our partnership agreement, may not be modified or repealed without amending our partnership agreement; however, the actual amount of our cash distributions for any quarter is subject to fluctuations based on the amount of cash we generate from our business and the amount of reserves our general partner establishes in accordance with our partnership agreement as described above.
 
We will pay our distributions on or about the 15th day of each of February, May, August and November to holders of record on or about the 1st day of each such month. If the distribution date does not fall on a business day, we will make the distribution on the first business day immediately preceding the indicated distribution date. We do not expect to make distributions with respect to the quarter ended June 30, 2010 or for the period that begins on July 1, 2010 and ends on the day prior to the closing of this offering other than the distributions to be made in connection with the closing of this offering that are described in “Summary — The Transactions” and “Use of Proceeds.” We will adjust the quarterly distribution for the period from the closing of this offering through September 30, 2010 based on the actual length of the period.
 
Anticipated Cash Available for Distribution for the Quarter Ended June 30, 2010
 
Our financial forecast does not include the quarter ended June 30, 2010 because the closing of this offering will occur in the quarter ending September 30, 2010. In addition, we do not have complete financial information available with respect to the quarter ended June 30, 2010 and the quarterly financial statement closing process for that quarter is not complete. However, based on the preliminary financial information we have available at this time, we believe we would have generated cash available for distribution for the quarter ended June 30, 2010 in the range of approximately $1.0 million to $3.0 million, or approximately $8.2 million to $6.2 million less than the amount of cash needed to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. Based on this range, for the quarter ended June 30, 2010, we believe we would have generated cash available for distribution sufficient to pay only between approximately 21.8% and 65.4% of the minimum quarterly distribution on all of our common units, and we would not have been able to pay any distribution on our subordinated units.
 
The estimated range of cash available for distribution for the quarter ended June 30, 2010 is preliminary and may change. We and our auditors have not begun our normal quarterly review procedures for the quarter ended June 30, 2010, and there can be no assurance that our final results for this quarterly period will not differ from these estimates, including as a result of quarter-end closing procedures or review adjustments, and any such differences could be material. These preliminary results are not necessarily indicative of the results to be achieved for the remainder of 2010 or any future period. In addition, these estimates should not be viewed as a substitute for full financial statements prepared in accordance with GAAP or as a measure of our financial performance.
 
Historical and Forecasted Results of Operations and Cash Available for Distribution
 
In this section, we present in detail the basis for our belief that we will be able to pay the minimum quarterly distribution on all of our common units and subordinated units and make the corresponding


53


Table of Contents

distribution on our general partner’s 2.0% general partner interest for the twelve months ending June 30, 2011, which is the first full four quarter period that begins after the expected closing date of this offering. We present a table below, consisting of historical results of operations and cash available for distribution for the year ended December 31, 2009 and the twelve months ended March 31, 2010 and forecasted results of operations and cash available for distribution for the twelve months ending June 30, 2011. In the table, we show our historical results of operations and the amount of cash available for distribution we would have had for the year ended December 31, 2009 and the twelve months ended March 31, 2010, based on our historical consolidated statements of operations included elsewhere in this prospectus and our forecasted results of operations and the forecasted amount of cash available for distribution for the twelve months ending June 30, 2011 based on our historical consolidated statements of operations included elsewhere in this prospectus and the significant assumptions upon which this forecast is based.
 
Our historical consolidated financial statements and the notes to those statements included elsewhere in this prospectus should be read together with “Selected Historical and Pro Forma Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
 
We must generate approximately $36.7 million (or an average of $9.2 million per quarter) of available cash to pay the minimum quarterly distribution for four quarters on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. We did not generate this amount of available cash from operating surplus during the year ended December 31, 2009 and the twelve months ended March 31, 2010. The amounts that we generated with respect to those periods were $16.1 million and $10.8 million, respectively. As a result, for the year ended December 31, 2009 and the twelve months ended March 31, 2010 we would have generated aggregate available cash sufficient to pay only 87.8% and 58.8%, respectively, of the aggregate minimum quarterly distribution on our common units during those periods, and we would not have been able to pay any distributions on our subordinated units during those periods. We have not used quarter-by-quarter estimates for each quarter in the year ended December 31, 2009 and the twelve months ended March 31, 2010 to determine if we would have generated available cash sufficient to pay the minimum quarterly distribution for each quarter during those periods.
 
Our financial forecast does not include the quarter ended June 30, 2010 and we do not have complete financial information available with respect to that quarter. However, based on the preliminary financial information we have available at this time, we believe that we will not have generated cash available for distribution for the quarter ended June 30, 2010 sufficient to pay the full minimum quarterly distribution on all of our common units, subordinated units and general partner units that will be outstanding immediately after this offering. Please read “— Anticipated Cash Available for Distribution for the Quarter Ended June 30, 2010.”
 
We forecast that our cash available for distribution generated during the twelve months ending June 30, 2011 will be approximately $44.1 million. This amount would be sufficient to pay the full minimum quarterly distribution of $0.4375 per unit on all of our common units and subordinated units and the corresponding distribution on our general partner’s 2.0% general partner interest for each quarter in the twelve months ending June 30, 2011. Although we believe that we will have available cash sufficient to pay the minimum quarterly distribution on all of our units for each quarter in the forecast period, we do not provide a quarterly forecast for each quarter in the forecast period due to the uncertainty surrounding the precise timing of certain anticipated capital expenditures during the latter part of the forecast period. However, we expect that cash generated from operations during the quarter ending September 30, 2010 will be approximately $6.9 million, or approximately $2.3 million less than the amount of cash needed to pay the entire minimum quarterly distribution on all of our outstanding units. As a result, during the quarter ending September 30, 2010, we expect to generate cash from operations sufficient to pay the entire minimum quarterly distribution on our common units, but only 52.9% of the minimum quarterly distribution on our subordinated units. We expect to fund the additional $2.3 million with cash on hand or working capital borrowings. This expected shortfall is primarily attributable to the volume of coal that we expect to purchase from third parties during the quarter ending September 30, 2010 and the timing of capital expenditures during that period.


54


Table of Contents

We are providing the financial forecast to supplement our historical consolidated financial statements in support of our belief that we will have sufficient cash available to allow us to pay cash distributions on all of our outstanding common units and subordinated units and the corresponding distributions on our general partner’s 2.0% general partner interest for the twelve months ending June 30, 2011 at the minimum quarterly distribution rate. Please read “— Significant Forecast Assumptions” for further information as to the assumptions we have made for the financial forecast. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” for information as to the accounting policies we have followed for the financial forecast.
 
Our forecast is based on assumptions that we believe to be reasonable with respect to the forecast period as a whole. We do not believe, however, that all of these assumptions necessarily lend themselves to an accurate accounting of precise quarter-by-quarter changes in projected operating results and cash flows. Providing this level of detail would require us to make very specific assumptions about the precise timing of each revenue and expense item in our forecast that are beyond our ability to make with the level of certainty and reasonableness appropriate for a forecast. To the extent that there is a shortfall during any quarter in the forecast period, we believe we would be able to make working capital borrowings to pay distributions in such quarter and would likely be able to repay such borrowings in a subsequent quarter because we believe the total cash available for distribution for the forecast period will be more than sufficient to pay the aggregate minimum quarterly distribution to all unitholders and the related distribution to our general partner for the forecast period.
 
Our forecast reflects our judgment as of the date of this prospectus of conditions we expect to exist and the course of action we expect to take during the twelve months ending June 30, 2011. We believe that our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results will be achieved. If our estimates are not achieved, we may not be able to pay quarterly distributions on our common units and subordinated units at the minimum quarterly distribution rate of $0.4375 per unit (or $1.75 per unit on an annualized basis) or any other rate. The assumptions and estimates underlying the forecast are inherently uncertain and, though we consider them reasonable as of the date of this prospectus, are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the forecast, including, among others, risks and uncertainties contained in “Risk Factors.” Accordingly, there can be no assurance that the forecast is indicative of our future performance or that actual results will not differ materially from those presented in the forecast. Inclusion of the forecast in this prospectus should not be regarded as a representation by any person that the results contained in the forecast will be achieved.
 
We do not, as a matter of course, make public forecasts as to future sales, earnings or other results. However, we have prepared the forecast set forth below to present the estimated cash available for distribution to our unitholders and general partner during the forecasted period. The accompanying forecast was not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in our view, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and our expected future financial performance. However, this information is not necessarily indicative of future results.
 
Neither our independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the forecast contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the forecast. We do not intend to update or otherwise revise the forecast to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even if any or all of the underlying assumptions are shown to be in error. Furthermore, we do not intend to update or revise the forecast to reflect changes in general economic or industry conditions.


55


Table of Contents

Oxford Resource Partners, LP
Cash Available for Distribution
 
                         
    Historical   Forecasted(1)
    Year Ended
  Twelve Months
  Twelve Months
    December 31,
  Ended
  Ending June 30,
    2009   March 31, 2010   2011
    (In thousands, except per unit and
    per ton amounts)
 
Operating data:
                       
Coal produced in tons
    5,846       6,256       7,890  
Coal purchased in tons
    530       595       670  
                         
Coal available for sale in tons
    6,376       6,851       8,560  
                         
Coal sold in tons
    6,311       6,788       8,654  
Increase in coal inventory in tons
    65       63       (94 )
Coal sales in tons — sold/committed(2)
    6,311       6,788       8,202  
Coal sales in tons — uncommitted
    n/a       n/a       452  
Average sales price per ton — sold/committed(2)
  $ 40.27     $ 38.83     $ 38.51  
Average sales price per ton — uncommitted
    n/a       n/a     $ 41.61  
Selected financial data:
                       
Coal sales revenue — sold/committed(2)
  $ 254,171     $ 263,550     $ 315,816  
Coal sales revenue — uncommitted
    n/a       n/a       18,834  
Transportation revenue
    32,490       33,360       44,200  
Royalty and non-coal revenue(3)
    7,183       6,555       7,455  
                         
Total revenues
    293,844       303,465       386,305  
Costs and expenses:
                       
Cost of coal sales (excluding DD&A, shown separately)
    170,698       185,059       217,218  
Cost of purchased coal
    19,487       18,841       20,813  
Cost of transportation
    32,490       33,360       44,200  
Depreciation, depletion and amortization
    25,902       28,991       49,535  
Selling, general and administrative expenses(4)
    13,242       13,676       15,192  
                         
Total costs and expenses
    261,819       279,927       346,958  
                         
Income from operations
    32,025       23,538       39,347  
Interest income
    35       25       33  
Interest expense
    (6,484 )     (7,194 )     (8,124 )
Gain from purchase of business(5)
    3,823       3,823        
                         
Net income
    29,399       20,192       31,256  
Less: income attributable to noncontrolling interest
    (5,895 )     (6,358 )     (5,643 )
                         
Net income attributable to Oxford Resource Partners, LP unitholders
  $ 23,504     $ 13,834     $ 25,613  
                         
Plus:
                       
Depreciation, depletion and amortization
    25,902       28,991       49,535  
Interest expense
    6,484       7,194       8,124  
Non-cash equity compensation expense
    472       667       433  
Less:
                       
Interest Income
    35       25       33  
Gain from purchase of business(5)
    3,823       3,823        
Amortization of below-market coal sales contracts
    1,705       2,330       2,100  
                         
Adjusted EBITDA(6)
  $ 50,799     $ 44,508     $ 81,572  
Less:
                       
Cash interest expense, net of interest income
    5,970       6,248       5,656  
Expansion capital expenditures
    33,406       35,626       22,100  
Reserve replacement expenditures(7)
    3,057       3,524       5,682  
Other maintenance capital expenditures(7)
    25,657       23,937       26,175  
                         
Add:
                       
Cash on hand to fund expansion capital expenditures(8)
    33,406       35,626       22,100  
Cash available for distribution
  $ 16,115     $ 10,799     $ 44,059  
Implied cash distributions at the minimum quarterly distribution rate:
                       
Annualized minimum quarterly distribution per unit
  $ 1.75     $ 1.75     $ 1.75  
Distributions to public common unitholders
  $ 15,313     $ 15,313     $ 15,313  
Distributions to participants in LTIP
    221       221       221  
Distributions to C&T Coal and AIM Oxford — common units
    2,457       2,457       2,457  
Distributions to C&T Coal and AIM Oxford — subordinated units
    17,991       17,991       17,991  
Distributions to general partner
    734       734       734  
                         
Total distributions to unitholders and general partner(9)
    36,716       36,716       36,716  
                         
Excess (shortfall)
  $ (20,601 )   $ (25,917 )   $ 7,343  
                         


56


Table of Contents

 
(1) The forecasted column is based on the assumptions set forth in “— Significant Forecast Assumptions” below.
 
(2) Represents coal sold for 2009 and the twelve months ended March 31, 2010 on a historical basis and coal committed for sale for the twelve months ending June 30, 2011. The forecast period amount includes 0.2 million tons that are subject to a price re-opener under a long-term coal sales contract.
 
(3) Consists of royalty payments we receive on our underground coal reserves as well as limestone sales and other revenue.
 
(4) Historical SG&A expenses for both the year ended December 31, 2009 and the twelve months ended March 31, 2010 include one-time expenses of $1.6 million associated with the Phoenix Coal acquisition and $1.0 million of legal fees incurred in renegotiating our existing credit facility, but do not include incremental SG&A expenses of approximately $3.0 million that we expect to incur as a result of being a publicly traded partnership. However, forecasted SG&A expenses for the twelve months ending June 30, 2011 do include such incremental SG&A expenses.
 
(5) On September 30, 2009, we acquired all of the active surfacing mining operations of Phoenix Coal. The purchase price of this acquisition was less than the fair value of the net assets and liabilities we acquired. We recorded this difference as a gain of $3.8 million for both the year ended December 31, 2009 and the twelve months ended March 31, 2010.
 
(6) This table presents a reconciliation of Adjusted EBITDA to net income (loss) attributable to our unitholders for each of the periods indicated. Adjusted EBITDA is a non-GAAP financial measure, which we use in our business as it is an important supplemental measure of our performance. Adjusted EBITDA represents net income (loss) attributable to our unitholders before interest, taxes, depreciation, depletion and amortization, gain from purchase of a business, amortization of below-market coal sales contracts and non-cash equity compensation expense. This measure is not calculated or presented in accordance with GAAP. We explain this measure below and reconcile it to its most directly comparable financial measures calculated and presented in accordance with GAAP.
 
Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and lenders, to assess:
 
• our financial performance without regard to financing methods, capital structure or income taxes;
 
• our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our unitholders and our general partner;
 
• our compliance with certain financial covenants applicable to our credit facility; and
 
• our ability to fund capital expenditure projects from operating cash flows.
 
Adjusted EBITDA should not be considered an alternative to net income (loss) attributable to our unitholders, income from operations, cash flows from operating activities or any other measure of performance presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income (loss) attributable to our unitholders, income from operations and cash flows, and these measures may vary among other companies. Therefore, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.
 
(7) Historically we have not made a distinction between maintenance capital expenditures and other capital expenditures. Our partnership agreement divides maintenance capital expenditures into two categories — reserve replacement expenditures and other maintenance capital expenditures. For purposes of this presentation, however, we have evaluated our capital expenditures for both the year ended December 31, 2009 and the twelve months ended March 31, 2010 to determine which of them would have been classified as reserve replacement expenditures and other maintenance capital expenditures, respectively, in accordance with our partnership agreement at the time they were made. Based on this evaluation, we estimate that our reserve replacement expenditures and other maintenance capital expenditures for the year ended December 31, 2009 would have been $3.1 million and $25.7 million, respectively, and for the twelve months ended March 31, 2010 would have been $3.5 million and $23.9 million, respectively. The amount of our actual reserve replacement expenditures may differ substantially from period to period, which could


57


Table of Contents

cause similar fluctuations in the amounts of operating surplus, adjusted operating surplus and cash available for distribution to our unitholders, if we subtracted actual reserve replacement expenditures from operating surplus. To eliminate these fluctuations, our partnership agreement will require that an estimate of the reserve replacement expenditures necessary to maintain our asset base be subtracted from operating surplus each quarter as opposed to amounts actually spent on reserve replacement expenditures. The $5.7 million of reserve replacement expenditures for the forecasted twelve months ending June 30, 2011 represents estimated reserve replacement expenditures as defined in our partnership agreement. The amount of estimated reserve replacement expenditures deducted from operating surplus must be determined by the board of directors of our general partner at least once a year, subject to approval by the Conflicts Committee. We expect our actual reserve replacement expenditures during the forecast period to be consistent with our estimated reserve replacement expenditures for that period. Please read “How We Make Cash Distributions — Operating Surplus and Capital Surplus — Definition of Operating Surplus” for a further discussion of the effects of our use of estimated reserve replacement expenditures.
 
(8) We expect to fund the $22.1 million of expansion capital expenditures incurred in the forecast period with the proceeds from this offering.
 
(9) Represents the amount that would be required to pay distributions for four quarters at our minimum quarterly distribution rate of $0.4375 per unit on all of the common and subordinated units that will be outstanding immediately following this offering and the corresponding distributions on our general partner’s 2.0% general partner interest.
 
Significant Forecast Assumptions
 
The forecast has been prepared by and is the responsibility of management. Our forecast reflects our judgment as of the date of this prospectus of conditions we expect to exist and the course of action we expect to take during the twelve months ending June 30, 2011. While the assumptions disclosed in this prospectus are not all-inclusive, the assumptions listed below are those that we believe are material to our forecasted results of operations and any assumptions not discussed below were not deemed to be material. We believe we have a reasonable objective basis for these assumptions. We believe our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results will be achieved. There will likely be differences between our forecast and the actual results and those differences could be material. If the forecast is not achieved, we may not be able to pay cash distributions on our common units at the minimum quarterly distribution rate or at all.
 
Production and Revenues.  We forecast that our total revenues for the twelve months ending June 30, 2011 will be approximately $386.3 million, as compared to approximately $293.8 million for the year ended December 31, 2009 and $303.5 million for the twelve months ended March 31, 2010. Our forecast of total revenues is based primarily on the following assumptions:
 
  •     We estimate that we will produce approximately 7.9 million tons of coal during the twelve months ending June 30, 2011, as compared to approximately 5.8 million tons and 6.3 million tons we produced in the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This estimated volume increase is primarily due to additional coal production from our Muhlenberg County mining complex that we acquired in the Phoenix Coal acquisition, as a result of a full year of production from these properties being reflected in the forecast period as well as our deployment of larger equipment and implementation of more efficient mining practices at that complex. We expect to produce an aggregate of approximately 2.0 million tons of coal from our Muhlenberg County mining complex in the forecast period, compared to 0.4 million tons of coal during the first quarter of 2010 (or 1.6 million tons on an annualized basis). We expect that our coal production during the forecast period from our other mining complexes will increase 9% and 7% compared to the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. These increases are primarily attributable to increased production at our Harrison County mining complex.


58


Table of Contents

  •     We estimate that we will sell approximately 8.7 million tons of coal during the twelve months ending June 30, 2011, as compared to approximately 6.3 million tons and 6.8 million tons we sold in the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. We have committed to sell approximately 8.2 million tons, of which 8.0 million tons are priced and 0.2 million tons are subject to price re-openers under a long-term coal sales contract. As described below, we expect to purchase approximately 0.7 million tons to balance our estimated sales volumes. Our estimates assume that we will be successful in repricing these 0.2 million tons at slightly higher prices. Our estimates also assume that our customers with options to take delivery of additional tons during the forecast period will not exercise their options. Our long-term coal sales contracts that provide for these options typically require the customer to provide us with from one to three months advance notice of an election to take option tons. This also assumes that we will reach agreement on an amendment to a long-term coal sales contract that we are currently negotiating with AEP. In exchange for the removal of AEP’s right to purchase option tons during an extension period, this amendment is expected to reduce the tons we are committed to deliver to AEP by approximately 280,000 tons in the second half of 2010 and by approximately 150,000 tons and 200,000 tons, respectively, in 2011 and 2012. This also includes orders to deliver additional tons to AEP from mining complexes that can ship coal through our Bellaire river terminal that were placed in June 2010.
 
  •     We estimate that the average sales price per ton for committed tons will be $38.51 for the twelve months ending June 30, 2011, as compared to $40.27 and $38.83 for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This estimate takes into account prices in our long-term coal sales contracts, including our estimate of the amount of applicable cost pass through or inflation adjustment provisions, and gives effect to the full year impact of the lower priced coal sales contracts that we assumed in connection with the Phoenix Coal acquisition, and the expiration of a non-recurring price increase for 2009, which contributed $13.25 million to revenues and Adjusted EBITDA in 2009, that related to an amendment of a long-term coal sales contract with a major customer. This estimate includes a price increase we have obtained over the forecast period for a long-term coal sales contract with a customer that uses coal we produce at our Muhlenberg County mining complex. In exchange for this price increase, we have agreed to extend the term of this long-term coal sales contract with this customer through 2015.
 
  •     We estimate that the average sales price per ton for uncommitted tons will be $41.61 for the twelve months ending June 30, 2011. Our estimated average sales price for these tons assumes that we will be successful in selling those uncommitted tons at prices that reflect management’s current estimates of market conditions and pricing trends.
 
  •     We estimate that our royalty and non-coal revenue, which consists of royalty payments received on our underground coal reserves as well as limestone sales and other sources of revenue, will be $7.5 million for the twelve months ending June 30, 2011, as compared to $7.2 million and $6.6 million for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. We have assumed that the overriding royalty payments on our underground coal reserves and all other non-coal revenues during the forecast period will slightly increase compared to the amounts we received for the year ended December 31, 2009 and the twelve months ended March 31, 2010.
 
Purchased Coal.  We estimate that we will purchase approximately 0.7 million tons of coal from third parties for the twelve months ending June 30, 2011, as compared to approximately 0.5 million tons and 0.6 million tons we purchased for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This increase is primarily due to the full year impact of a long-term coal purchase contract that we assumed in connection with the Phoenix Coal acquisition under which we purchase approximately 0.4 million tons annually.


59


Table of Contents

Cost of Coal Sales.  We estimate that our cost of coal sales will be $217.2 million for the twelve months ending June 30, 2011, compared to $170.7 million and $185.1 million for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. The increase in cost of coal sales for the forecast period as compared to the year ended December 31, 2009 and the twelve months ended March 31, 2010 is primarily attributable to increased coal production, partially offset by a decrease in our cost of coal sales per ton. We estimate that our cost of coal sales per ton for the twelve months ending June 30, 2011 will be $27.53, compared to $29.20 and $29.56 for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This projected decrease is primarily attributable to reduced operating lease expense as a result of purchasing major mining equipment that we currently lease and increased efficiency as a result of the purchase of major mining equipment in connection with the consummation of the transactions described in “Summary — The Transactions.” At closing, we will spend approximately $32.1 million to buyout certain operating leases. As a result, during the forecast period, we estimate that our operating lease expense will be reduced by approximately $9.4 million related to purchases of major mining equipment that we either currently lease or would have leased during that period but for the transactions contemplated in connection with this offering. In addition, we estimate that we will realize approximately $6.9 million in cost savings related to increased efficiency that we expect to gain from the purchase of additional major mining equipment in connection with this offering. The projected decrease in our cost of coal sales per ton during the forecast period is also attributable to a projected decrease in diesel fuel and explosives costs on a per ton basis due to a projected increase in production, partially offset by higher non-commodity-related operating costs on a per ton basis due to the Phoenix Coal acquisition.
 
Cost of Purchased Coal.  We forecast our cost of purchased coal will be $20.8 million for the twelve months ending June 30, 2011, compared to $19.5 million and $18.8 million for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This increase is primarily attributable to slightly more tons of coal being purchased in the forecast period as compared to the year ended December 31, 2009 and the twelve months ended March 31, 2010, partially offset by a decrease in the cost per ton of purchased coal. We estimate that the cost per ton of purchased coal will be $31.06 for the twelve months ending June 30, 2011, compared to $36.79 and $31.65 for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. During the first quarter of 2009, we bought a higher percentage of our purchased coal on the spot market in order to meet our coal sales obligations. Since that time, due to a long-term coal purchase contract under which we purchase approximately 0.4 million tons annually, our need for spot market purchases has declined.
 
Depreciation, Depletion and Amortization.  We forecast depreciation, depletion and amortization expense to be approximately $49.5 million for the twelve months ending June 30, 2011, compared to approximately $25.9 million and $29.0 million for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This increase is primarily due to additional depreciation expense as a result of purchasing major mining equipment in connection with the consummation of the transactions described in “Summary — The Transactions.” This increase is also due to the full year impact of increased depletion as a result of the Phoenix Coal acquisition.
 
Selling, General and Administrative Expenses.  We forecast SG&A expenses to be approximately $15.1 million for the twelve months ending June 30, 2011, compared to approximately $13.2 million and $13.7 million for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. This increase is primarily attributable to $3.0 million in incremental SG&A expenses that we expect to incur as a result of being a publicly traded partnership, partially offset by a decrease in acquisition costs and legal fees, which were higher in the year ended December 31, 2009 and the twelve months ended March 31, 2010 due to $1.6 million of non-recurring expenses associated with the Phoenix Coal acquisition and $1.0 million of legal fees incurred in renegotiating our existing credit facility in connection with that acquisition.
 
Harrison Resources Distributions.  We estimate that the aggregate cash distributions we will receive from Harrison Resources for the twelve months ending June 30, 2011 will be $5.6 million, compared to the aggregate of $6.4 million we received in the year ended December 31, 2009 and the $4.8 million we received for the twelve months ended March 31, 2010. In the forecast period, we have assumed that the cash


60


Table of Contents

distributions we will receive from Harrison Resources will constitute substantially all of our Adjusted EBITDA attributable to Harrison Resources. This assumption is consistent with the distributions we received from, and the portion of our Adjusted EBITDA attributable to, Harrison Resources in the year ended December 31, 2009 and the twelve months ended March 31, 2010.
 
Financing.  We forecast interest expense of approximately $8.1 million for the twelve months ending June 30, 2011, compared to approximately $6.5 million and $7.2 million for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. Our interest expense for the twelve months ending June 30, 2011 is based on the following assumptions:
 
  •     we will repay in full the outstanding borrowings of $96.5 million under our existing credit facility with a portion of the proceeds from the offering;
 
  •     we will borrow approximately $86.0 million under our new credit facility;
 
  •     for calculating our interest expense, we have assumed a weighted average interest rate over the forecast period of 7.6% under our new credit facility, which is higher than the weighted average interest rate of 6.9% for the year ended December 31, 2009 and 7.2% for the twelve months ended March 31, 2010 under our existing credit facility; and
 
  •     we will maintain a low cash balance.
 
Our forecasted interest expense includes approximately $0.7 million of imputed interest attributable to the non-interest bearing note that Harrison Resources will issue to CONSOL in connection with the transaction described at “Summary — Recent Developments.”
 
Capital Expenditures.  We forecast capital expenditures for the twelve months ending June 30, 2011 based on the following assumptions:
 
  •     Our estimated reserve replacement expenditures for the forecast period are $5.7 million for the twelve months ending June 30, 2011, compared to approximately $3.1 million and $3.5 million of actual reserve replacement expenditures for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. Our estimated maintenance capital expenditures (other than estimated reserve replacement expenditures) for the forecast period are $26.2 million for the twelve months ending June 30, 2011, compared to approximately $25.7 million and $23.9 million of actual other maintenance capital expenditures for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively. These increases are primarily due to a larger asset base, including replacement of reserves, following the Phoenix Coal acquisition. We expect to fund maintenance capital expenditures from cash generated by our operations and from borrowings under our new credit facility.
 
  •     Our expansion capital expenditures for the forecast period are approximately $22.1 million as compared to approximately $33.4 million and $35.6 million of actual capital expenditures for the year ended December 31, 2009 and the twelve months ended March 31, 2010, respectively, that we would have classified as expansion capital expenditures if we had distinguished between expansion capital expenditures and other capital expenditures during those periods. Please read “How We Make Cash Distributions — Operating Surplus and Capital Surplus — Capital Expenditures” for a further discussion of expansion capital expenditures. Of the $33.4 million of expansion capital expenditures for the year ended December 31, 2009, approximately $28.7 million was attributable to the Phoenix Coal acquisition and approximately $4.7 million was attributable to the purchase of other additional coal reserves. Of the $35.6 million of expansion capital expenditures for the twelve months ended March 31, 2010, approximately $28.7 million was attributable to the Phoenix Coal acquisition and approximately $6.9 million was attributable to the purchase of other additional coal reserves. The forecasted expansion capital expenditures for the forecast period consist of approximately $8.6 million for an electric shovel and supporting fleet at our Muhlenberg County complex, $6.5 million for a highwall miner at our Belmont County complex and $7.0 million for large scale bulldozers and will be funded with net proceeds from this offering and advances under our new credit facility. Please read “How We Make Cash Distributions — Operating Surplus and Capital Surplus — Capital Expenditures” for a further discussion of expansion capital expenditures.


61


Table of Contents

Regulatory, Industry and Economic Factors.  We forecast for the twelve months ending June 30, 2011 based on the following assumptions related to regulatory, industry and economic factors:
 
  •     no material nonperformance or credit-related defaults by suppliers, customers or vendors, or shortage of skilled labor;
 
  •     all supplies and commodities necessary for production and sufficient transportation will be readily available;
 
  •     no new federal, state or local regulation of the portions of the mining industry in which we operate or any interpretation of existing regulation that in either case will be materially adverse to our business;
 
  •     no material unforeseen geologic conditions or equipment problems at our mining locations;
 
  •     no material accidents, weather-related incidents, unscheduled downtime or similar unanticipated events;
 
  •     no major adverse change in the coal markets in which we operate resulting from supply or production disruptions, reduced demand for our coal or significant changes in the market prices of coal; and
 
  •     no material changes in market, regulatory or overall economic conditions.


62


Table of Contents

 
HOW WE MAKE CASH DISTRIBUTIONS
 
Distributions of Available Cash
 
General
 
Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute our available cash to unitholders of record on the applicable record date. We do not expect to make distributions with respect to the quarter ended June 30, 2010 or for the period that begins on July 1, 2010 and ends on the day prior to the closing of this offering other than the distributions to be made in connection with the closing of this offering that are described in “Summary — The Transactions” and “Use of Proceeds.” We will adjust the minimum quarterly distribution for the period from the closing of the offering through September 30, 2010 based on the actual length of the period.
 
Definition of Available Cash
 
Available cash generally means, for any quarter, all cash on hand at the end of the quarter:
 
  •     less the amount of cash reserves established by our general partner at the date of determination of available cash for the quarter to:
 
  •     provide for the proper conduct of our business (including reserves for our future capital expenditures and anticipated future credit needs subsequent to that quarter);
 
  •     comply with applicable law, any of our debt instruments or other agreements; and
 
  •     provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;
 
  •     plus, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
 
The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are generally borrowings that are made under a credit facility, commercial paper facility or similar financing arrangement, and in all cases are used solely to pay distributions to partners and with the intent of the borrower to repay such borrowings within 12 months other than from additional working capital borrowings. If a working capital borrowing, which increases operating surplus, is not repaid during the twelve-month period following the borrowing, it will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowing is in fact repaid, it will not be treated as a further reduction in operating surplus because operating surplus will have been previously reduced by the deemed repayment.
 
Intent to Distribute the Minimum Quarterly Distribution
 
We intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $0.4375 per unit, or $1.75 on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our general partner. However, there is no guarantee that we will pay the minimum quarterly distribution on our units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility” for a discussion of the restrictions to be included in our new credit facility that may restrict Oxford Mining Company’s ability to make distributions to us.


63


Table of Contents

General Partner Interest and Incentive Distribution Rights
 
As of the date of this offering, our general partner is entitled to 2.0% of all quarterly distributions that we make prior to our liquidation. This general partner interest will be represented by 419,607 general partner units upon the completion of this offering. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us in order to maintain its current general partner interest. Our general partner’s initial 2.0% interest in our distributions may be reduced if we issue additional limited partner units in the future and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest.
 
Our general partner also currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50.0%, of the cash we distribute from operating surplus (as defined below) in excess of $0.5031 per unit per quarter. The maximum distribution of 50.0% includes distributions paid to our general partner on its 2.0% general partner interest and assumes that our general partner maintains its general partner interest at 2.0%. The maximum distribution of 50.0% does not include any distributions that our general partner may receive on common units or subordinated units that it owns. Please read “— General Partner Interest and Incentive Distribution Rights” for additional information.
 
Operating Surplus and Capital Surplus
 
Overview
 
All cash distributed to unitholders will be characterized as either being paid from “operating surplus” or “capital surplus.” We treat distributions of available cash from operating surplus differently than distributions of available cash from capital surplus.
 
Definition of Operating Surplus
 
We define operating surplus as:
 
  •     $35.0 million (as described below); plus
 
  •     an amount equal to the aggregate amount of cash distributed to our general partner, C&T Coal, AIM Oxford and the participants in our LTIP that hold our common units in respect of the right (entitling them to receive cash collected from accounts receivable outstanding prior to the closing of this offering) distributed to them immediately prior to the closing of this offering; plus
 
  •     all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions (as defined below); plus
 
  •     working capital borrowings made after the end of a quarter but on or before the date of determination of operating surplus for that quarter; plus
 
  •     cash distributions paid on equity issued (including incremental distributions on incentive distribution rights), other than equity issued on the closing date of this offering, to finance all or a portion of expansion capital expenditures in respect of the period from such financing until the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of; plus
 
  •     cash distributions paid on equity issued by us (including incremental distributions on incentive distribution rights) to pay the interest on debt incurred, or to pay distributions on equity issued, to finance the expansion capital expenditures referred to above, in each case in respect of the period from such financing until the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of; less
 
  •     all of our operating expenditures (as defined below) after the closing of this offering and the completion of the transactions described in “Summary — The Transactions”; less
 
  •     the amount of cash reserves established by our general partner prior to the date of determination of available cash to provide funds for future operating expenditures; less


64


Table of Contents

 
  •     all working capital borrowings not repaid within 12 months after having been incurred, or repaid within such 12-month period with the proceeds of additional working capital borrowings; less
 
  •     any cash loss realized on disposition of an investment capital expenditure.
 
As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders. For example, it includes a provision that will enable us, if we choose, to distribute as operating surplus up to $35.0 million of cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus.
 
We define interim capital transactions as (i) borrowings, refinancings or refundings of indebtedness other than working capital borrowings, (ii) sales of equity securities, (iii) sales or other dispositions of assets outside the ordinary course of business, (iv) capital contributions received, (v) corporate reorganizations or restructurings and (vi) the termination of interest rate hedge contracts or commodity hedge contracts prior to the termination date specified therein (provided that cash receipts from any such termination will be included in operating surplus in equal quarterly installments over the remaining scheduled life of the contract).
 
We define operating expenditures as the sum of (a) estimated reserve replacement expenditures and (b) all of our cash expenditures, including, but not limited to, taxes, employee and director compensation, reimbursements of expenses to our general partner, repayments of working capital borrowings, debt service payments, reclamation expenses, payments made in the ordinary course of business under interest rate hedge contracts and commodity hedge contracts and actual maintenance capital expenditures other than actual reserve replacement expenditures (as discussed in further detail below), provided that operating expenditures will not include:
 
  •     repayments of working capital borrowings where such borrowings have previously been deemed to have been repaid (as described above);
 
  •     payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than working capital borrowings;
 
  •     expansion capital expenditures;
 
  •     investment capital expenditures;
 
  •     payment of transaction expenses (including taxes) relating to interim capital transactions;
 
  •     distributions to partners;
 
  •     actual reserve replacement expenditures;
 
  •     non-pro rata repurchases of partnership interests made with the proceeds of an interim capital transaction; or
 
  •     any other payments made in connection with this offering that are described under “Use of Proceeds.”
 
Capital Expenditures
 
Maintenance capital expenditures are cash expenditures (including expenditures for the addition or improvement to, or the replacement of, our capital assets or for the acquisition of existing, or the construction or development of new, capital assets) made to maintain, including over the long term, our operating capacity, asset base or operating income. Our partnership agreement divides maintenance capital expenditures into two categories — reserve replacement expenditures and other maintenance capital expenditures. Examples of reserve replacement expenditures include cash expenditures for the purchase of fee interests in coal reserves and cash expenditures for advance royalties with respect to the acquisition of leasehold interests in coal reserves. Examples of other maintenance capital expenditures include capital expenditures associated with the repair, refurbishment and replacement of equipment.


65


Table of Contents

Because our reserve replacement expenditures can be irregular, the amount of our actual reserve replacement expenditures may differ substantially from period to period, which could cause similar fluctuations in the amounts of operating surplus, adjusted operating surplus and cash available for distribution to our unitholders if we subtracted actual reserve replacement expenditures from operating surplus.
 
Our partnership agreement requires that an estimate of the average quarterly reserve replacement expenditures and the actual amount of other maintenance capital expenditures be subtracted from operating surplus each quarter. The amount of estimated reserve replacement expenditures deducted from operating surplus for those periods will be determined by the board of directors of our general partner at least once a year, subject to approval by the Conflicts Committee. The estimate will be made annually and whenever an event occurs that is likely to result in a material adjustment to the amount of our reserve replacement expenditures on a long-term basis. For purposes of calculating operating surplus (other than when used to determine whether the subordination period has ended), any adjustment to this estimate will be prospective only. For a discussion of the amounts we have allocated toward reserve replacement expenditures and other maintenance capital expenditures for the forecast period ending June 30, 2011, please read “Cash Distribution Policy and Restrictions on Distributions.”
 
The use of estimated reserve replacement expenditures in calculating operating surplus will have the following effects:
 
  •     it will reduce the risk that reserve replacement expenditures in any one quarter will be large enough to render operating surplus less than the minimum quarterly distribution to be paid on all the units for the quarter and subsequent quarters;
 
  •     it will increase our ability to distribute as operating surplus cash we receive from non-operating sources;
 
  •     it will be more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions on the incentive distribution rights held by our general partner; and
 
  •     it will reduce the likelihood that a large reserve replacement expenditure in a period will prevent our general partner’s affiliates from being able to convert some or all of their subordinated units into common units since the effect of an estimate is to spread the expected expense over several periods, thereby mitigating the effect of the actual payment of the expenditure on any single period.
 
Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements and shall not include maintenance capital expenditures or investment capital expenditures. Expansion capital expenditures include interest payments (and related fees) on debt incurred to finance the construction, acquisition or development of an improvement to our capital assets and paid in respect of the period beginning on the date that we enter into a binding obligation to commence construction, acquisition or development of the capital improvement and ending on the earlier to occur of the date that such capital improvement commences commercial service and the date that such capital improvement is abandoned or disposed of. Examples of expansion capital expenditures include the acquisition of reserves, equipment or a new mine or the expansion of an existing mine, to the extent such capital expenditures are expected to expand our long-term operating capacity, asset base or operating income.
 
Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capital expenditures. Investment capital expenditures largely will consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes or development of facilities that are in excess of the maintenance of our existing operating capacity or operating income, but which are not expected to expand, for more than the short term, our operating capacity or operating income.
 
Capital expenditures that are made in part for two or more purposes consisting of maintenance capital purposes, investment capital purposes and/or expansion capital purposes will be allocated as maintenance


66


Table of Contents

capital expenditures, investment capital expenditures and/or expansion capital expenditure by our general partner.
 
Subordination Period
 
General
 
Our partnership agreement provides that, during the subordination period (which we define below), the common units will have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $0.4375 per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units will not be entitled to receive any distributions until the common units have received the minimum quarterly distribution plus any arrearages from prior quarters. Furthermore, no arrearages will be paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed on the common units.
 
Definition of Subordination Period
 
The subordination period will begin upon the date of this offering and will extend until the first business day of any quarter beginning after September 30, 2013 that each of the following tests are met:
 
  •     distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
 
  •     the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units, subordinated units and general partner units on a fully diluted basis during those periods; and
 
  •     there are no arrearages in payment of the minimum quarterly distribution on the common units.
 
For purposes of determining whether sufficient adjusted operating surplus has been generated under the above conversion test, the Conflicts Committee may adjust operating surplus upwards or downwards if it determines in good faith that the amount of estimated reserve replacement expenditures used in the determination of adjusted operating surplus was materially incorrect, based on the circumstances prevailing at the time of the original estimate, for any one or more of the preceding two four-quarter periods.
 
Early Termination of Subordination Period
 
Notwithstanding the foregoing, the subordination period will automatically terminate and all of the subordinated units will convert into common units on a one-for-one basis if each of the following occurs on or after September 30, 2011:
 
  •     distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded $2.625 (150.0% of the annualized minimum quarterly distribution) for the immediately preceding four-quarter period;
 
  •     the adjusted operating surplus (as defined below) generated during the immediately preceding four-quarter period equaled or exceeded the sum of $2.625 (150.0% of the annualized minimum quarterly distribution) on each of the outstanding common units, subordinated units and general partner units during that period on a fully diluted basis; and
 
  •     there are no arrearages in payment of the minimum quarterly distributions on the common units.


67


Table of Contents

Expiration of the Subordination Period
 
When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will thereafter participate pro rata with the other common units in distributions of available cash. In addition, if the unitholders remove our general partner other than for cause and no units held by our general partner and its affiliates are voted in favor of such removal:
 
  •     the subordination period will end and each subordinated unit will immediately convert into one common unit;
 
  •     any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
 
  •     our general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.
 
Definition of Adjusted Operating Surplus
 
Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net drawdowns of reserves of cash generated in prior periods. Adjusted operating surplus for a period consists of:
 
  •     operating surplus (excluding the first bullet of the definition and including the second bullet of the definition, but only to the extent such accounts receivable are collected in cash) generated with respect to that period; less
 
  •     any net increase in working capital borrowings with respect to such period; less
 
  •     any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus
 
  •     any net decrease in working capital borrowings with respect to such period; plus
 
  •     any net decrease made in subsequent periods to cash reserves for operating expenditures initially established with respect to such period to the extent such decrease results in a reduction in adjusted operating surplus in subsequent periods; plus
 
  •     any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
 
Distributions of Available Cash from Operating Surplus during the Subordination Period
 
We will make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:
 
  •     first, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
 
  •     second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
 
  •     third, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and
 
  •     thereafter, in the manner described in “— General Partner Interest and Incentive Distribution Rights” below.


68


Table of Contents

The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.
 
Distributions of Available Cash from Operating Surplus after the Subordination Period
 
We will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:
 
  •     first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
 
  •     thereafter, in the manner described in “— General Partner Interest and Incentive Distribution Rights” below.
 
The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.
 
General Partner Interest and Incentive Distribution Rights
 
Our partnership agreement provides that our general partner initially will be entitled to 2.0% of all distributions that we make prior to our liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest if we issue additional units. Our general partner’s 2.0% interest, and the percentage of our cash distributions to which it is entitled from such 2.0% interest, will be proportionately reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2.0% general partner interest.
 
Incentive distribution rights represent the right to receive an increasing percentage (13.0%, 23.0% and 48.0%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in our partnership agreement.
 
The following discussion assumes that our general partner maintains its 2.0% general partner interest, that there are no arrearages on common units and that our general partner continues to own the incentive distribution rights.
 
If for any quarter:
 
  •     we have distributed available cash from operating surplus to the unitholders in an amount equal to the minimum quarterly distribution; and
 
  •     we have distributed available cash from operating surplus on outstanding common units and the general partner interest in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution to the common unitholders;
 
then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and our general partner in the following manner:
 
  •     first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives a total of $0.5031 per unit for that quarter (the “first target distribution”);
 
  •     second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $0.5469 per unit for that quarter (the “second target distribution”);
 
  •     third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives a total of $0.6563 per unit for that quarter (the “third target distribution”); and
 
  •     thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.


69


Table of Contents

 
Percentage Allocations of Available Cash from Operating Surplus
 
The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit Target Amount.” The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below for our general partner include its 2.0% general partner interest and assume that there are no arrearages on common units, our general partner has contributed any additional capital necessary to maintain its 2.0% general partner interest and our general partner has not transferred its incentive distribution rights.
 
                             
            Marginal Percentage Interest
    Total Quarterly Distribution
  in Distributions
    Per Unit Target Amount   Unitholders   General Partner
 
Minimum Quarterly Distribution
         $ 0.4375           98 %     2 %
First Target Distribution
  above $ 0.4375     up to $0.5031     98 %     2 %
Second Target Distribution
  above $ 0.5031     up to $0.5469     85 %     15 %
Third Target Distribution
  above $ 0.5469     up to $0.6563     75 %     25 %
Thereafter
  above $ 0.6563           50 %     50 %
 
General Partner’s Right to Reset Incentive Distribution Levels
 
Our general partner, as the initial holder of our incentive distribution rights, has the right under our partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial cash target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and cash target distribution levels upon which the incentive distribution payments to our general partner would be set. If our general partner transfers all or a portion of our incentive distribution rights in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. The following discussion assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. The right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions are based may be exercised, without approval of our unitholders or the Conflicts Committee, at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters. If our general partner and its affiliates are not the holders of a majority of the incentive distribution rights at the time an election is made to reset the minimum quarterly distribution amount and the target distribution levels, then the proposed reset shall be subject to the prior written concurrence of the general partner that the conditions described above have been satisfied. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that there will be no incentive distributions paid under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.
 
In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target cash distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units and general partner units based on a predetermined formula described below that takes into account the “cash parity” value of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters prior to the reset event as compared to the average cash distributions per common unit during that two-quarter period. Our general partner will be issued the number of


70


Table of Contents

general partner units necessary to maintain our general partner’s interest in us immediately prior to the reset election.
 
The number of common units that our general partner would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to the quotient determined by dividing (x) the average aggregate amount of cash distributions received by our general partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately prior to the date of such reset election by (y) the average of the amount of cash distributed per common unit during each quarter in that two-quarter period.
 
Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per unit for the two fiscal quarters immediately preceding the reset election (which amount we refer to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:
 
  •     first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives an amount equal to 115.0% of the reset minimum quarterly distribution for that quarter;
 
  •     second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter;
 
  •     third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives an amount per unit equal to 150.0% of the reset minimum quarterly distribution for the quarter; and
 
  •     thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
 
The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and our general partner at various cash distribution levels (i) pursuant to the cash distribution provisions of our partnership agreement in effect at the closing of this offering, as well as (ii) following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average quarterly cash distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $0.70.
 
                                                 
            Marginal Percentage
       
            Interest in Distributions        
            2.0%
           
            General
  Incentive
       
    Quarterly Distribution
      Partner
  Distribution
  Quarterly Distribution Per Unit
    Per Unit Prior to Reset   Unitholders   Interest   Rights   Following Hypothetical Reset
 
Minimum Quarterly Distribution
             $0.4375     98 %     2.0 %                          $ 0.70  
First Target Distribution
  above $0.4375   up to $0.5031     98 %     2.0 %                   up to $0.805 (1)
Second Target Distribution
  above $0.5031   up to $0.5469     85 %     2.0 %     13.0 %   above $ 0.805(1 )     up to $0.875 (2)
Third Target Distribution
  above $0.5469   up to $0.6563     75 %     2.0 %     23.0 %   above $ 0.875(2 )     up to $ 1.05 (3)
Thereafter
      above $0.6563     50 %     2.0 %     48.0 %             above $ 1.05 (3)
 
 
(1) This amount is 115.0% of the hypothetical reset minimum quarterly distribution.
 
(2) This amount is 125.0% of the hypothetical reset minimum quarterly distribution.
 
(3) This amount is 150.0% of the hypothetical reset minimum quarterly distribution.
 
The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights, or IDRs, based on an average of the amounts distributed each quarter for the two quarters immediately prior to the reset. The table assumes that immediately prior to the reset there would be 20,560,748 common units


71


Table of Contents

outstanding, our general partner has maintained its 2.0% general partner interest, and the average distribution to each common unit would be $0.70 for the two quarters prior to the reset.
 
                                                         
                  Cash Distributions to General
       
        Cash
    Partner Prior to Reset        
        Distributions to
          2.0%
                   
    Quarterly
  Common
          General
    Incentive
             
    Distribution Per
  Unitholders
    Common
    Partner
    Distribution
          Total
 
    Unit Prior to Reset   Prior to Reset     Units     Interest     Rights     Total     Distributions  
 
Minimum Quarterly Distribution
             $0.4375   $ 8,995,327     $     $ 183,578     $     $ 183,578     $ 9,178,905  
First Target Distribution
  above $0.4375   up to $0.5031     1,348,785             27,526             27,526       1,376,311  
Second Target Distribution
  above $0.5031   up to $0.5469     900,561             21,190       137,733       158,923       1,059,484  
Third Target Distribution
  above $0.5469   up to $0.6563     2,249,346             59,983       689,799       749,782       2,999,128  
Thereafter
      above $0.6563     898,505             35,940       862,565       898,505       1,797,010  
                                                         
            $ 14,392,524     $     $ 328,217     $ 1,690,097     $ 2,018,314     $ 16,410,838  
                                                         
 
The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of IDRs, with respect to the quarter in which the reset occurs. The table reflects that as a result of the reset there would be 22,975,172 common units outstanding, our general partner’s 2.0% interest has been maintained, and the average distribution to each common unit would be $0.70. The number of common units to be issued to our general partner upon the reset was calculated by dividing (i) the average of the amounts received by our general partner in respect of its IDRs for the two quarters prior to the reset as shown in the table above, or $1,690,097, by (ii) the average available cash distributed on each common unit for the two quarters prior to the reset as shown in the table above, or $0.70.
 
                                                         
        Cash
    Cash Distributions to General
       
        Distributions
    Partner After Reset        
        to
          2.0%
                   
    Quarterly
  Common
          General
    Incentive
             
    Distribution Per
  Unitholders
    Common
    Partner
    Distribution
          Total
 
    Unit After Reset   After Reset     Units     Interest     Rights     Total     Distributions  
 
Minimum Quarterly Distribution
             $ 0.70   $ 14,392,524     $ 1,690,097     $ 328,217     $     $ 2,018,314     $ 16,410,838  
First Target Distribution
  above $0.70   up to $0.805                                    
Second Target Distribution
  above $0.805   up to $0.875                                    
Third Target Distribution
  above $0.875   up to $ 1.05                                    
Thereafter
      above $ 1.05                                    
                                                         
            $ 14,392,524     $ 1,690,097     $ 328,217     $     $ 2,018,314     $ 16,410,838  
                                                         
 
Our general partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the prior four consecutive fiscal quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.
 
Distributions from Capital Surplus
 
How Distributions from Capital Surplus Will Be Made
 
We will make distributions of available cash from capital surplus, if any, in the following manner:
 
  •     first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each common unit that was issued in this offering, an amount of available cash from capital surplus equal to the initial public offering price in this offering;
 
  •     second, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the outstanding common units; and
 
  •     thereafter, as if they were from operating surplus.


72


Table of Contents

The preceding discussion is based on the assumptions that our general partner maintains its 2.0% general partner interest and that we do not issue additional classes of equity securities.
 
Effect of a Distribution from Capital Surplus
 
Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the “unrecovered initial unit price.” Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. Because distributions of capital surplus will reduce the minimum quarterly distribution, after any of these distributions are made, it may be easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.
 
Once we distribute capital surplus on a unit issued in this offering in an amount equal to the initial unit price, we will reduce the minimum quarterly distribution and the target distribution levels to zero. We will then make all future distributions from operating surplus, with 50% being paid to the unitholders, pro rata, and 50% to our general partner. The percentage interests shown for our general partner include its 2.0% general partner interest and assume that our general partner has not transferred the incentive distribution rights.
 
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
 
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
 
  •     the minimum quarterly distribution;
 
  •     the number of common units into which a subordinated unit is convertible;
 
  •     target distribution levels; and
 
  •     the unrecovered initial unit price.
 
For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced to 50% of its initial level, and each subordinated unit would be convertible into two common units. We will not make any adjustment by reason of the issuance of additional units for cash or property.
 
In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental authority, so that we become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the minimum quarterly distribution and the target distribution levels for each quarter may be reduced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator of which is the sum of available cash for that quarter plus our general partner’s estimate of our aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters.
 
Distributions of Cash Upon Liquidation
 
General
 
If we dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and our general partner, in accordance


73


Table of Contents

with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.
 
The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of outstanding common units to a preference over the holders of outstanding subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of these amounts, even though there may be cash available for distribution to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights of our general partner.
 
Manner of Adjustments for Gain
 
The manner of the adjustment for gain is set forth in our partnership agreement. If our liquidation occurs before the end of the subordination period, we will allocate any gain to our partners in the following manner:
 
  •     first, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances;
 
  •     second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until the capital account for each common unit is equal to the sum of:
 
(1) the unrecovered initial unit price;
 
(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and
 
(3) any unpaid arrearages in payment of the minimum quarterly distribution;
 
  •     third, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until the capital account for each subordinated unit is equal to the sum of:
 
(1) the unrecovered initial unit price; and
 
(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;
 
  •     fourth, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:
 
(1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less
 
(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98.0% to the unitholders, pro rata, and 2.0% to our general partner, for each quarter of our existence;
 
  •     fifth, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:
 
(1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less
 
(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence;


74


Table of Contents

  •     sixth, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:
 
(1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less
 
(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to our general partner for each quarter of our existence;
 
  •     thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.
 
The percentages set forth above are based on the assumption that our general partner has not transferred its incentive distribution rights and that we do not issue additional classes of equity securities.
 
If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the third bullet point above will no longer be applicable.
 
Manner of Adjustments for Losses
 
If our liquidation occurs before the end of the subordination period, after making allocations of loss to the general partner and the unitholders in a manner intended to offset in reverse order the allocations of gains that have previously been allocated, we will generally allocate any loss to our general partner and unitholders in the following manner:
 
  •     first, 98.0% to holders of subordinated units in proportion to the positive balances in their capital accounts and 2.0% to our general partner, until the capital accounts of the subordinated unitholders have been reduced to zero;
 
  •     second, 98.0% to the holders of common units in proportion to the positive balances in their capital accounts and 2.0% to our general partner, until the capital accounts of the common unitholders have been reduced to zero; and
 
  •     thereafter, 100.0% to our general partner.
 
If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.
 
Adjustments to Capital Accounts
 
Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units as a result of such gain, our partnership agreement requires that we generally allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the partners’ capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made. By contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the unitholders and our general partner based on their respective percentage ownership of us. In this manner, prior to the end of the subordination period, we generally will allocate any such loss equally with respect to our common and subordinated units. In the event we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units will be allocated in a manner designed to reverse the prior negative adjustments, and special allocations will be made upon liquidation in a manner designed to result, to the extent possible, in our unitholders’ capital account balances equaling the amounts they would have been if no earlier adjustments for loss had been made.


75


Table of Contents

 
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
 
The following table presents our selected historical consolidated financial and operating data, as well as that of our accounting predecessor and wholly owned subsidiary, Oxford Mining Company, as of the dates and for the periods indicated. The following table also presents our selected pro forma consolidated financial and operating data as of the dates and for the periods indicated.
 
The selected financial data for the year ended December 31, 2005 are derived from the audited historical consolidated balance sheet of Oxford Mining Company that is not included in this prospectus. The selected historical consolidated financial data presented as of and for the year ended December 31, 2006 are derived from the audited historical consolidated financial statements of Oxford Mining Company that are not included in this prospectus. The selected historical consolidated financial data presented as of August 23, 2007 and for the period from January 1, 2007 to August 23, 2007 are derived from the audited historical consolidated financial statements of Oxford Mining Company that are included elsewhere in this prospectus. The selected historical consolidated financial data presented as of December 31, 2007 for the period from August 24, 2007 to December 31, 2007 and as of and for the years ended December 31, 2008 and 2009 are derived from our audited historical consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated financial data presented as of and for the quarters ended March 31, 2009 and 2010 are derived from our unaudited condensed historical consolidated financial statements included elsewhere in this prospectus.
 
The selected pro forma consolidated financial data presented as of and for the year ended December 31, 2009 and as of and for the quarter ended March 31, 2010 are derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. Our unaudited pro forma consolidated statement of operations and consolidated balance sheet give pro forma effect to this offering and the transactions related to this offering described in “Summary — The Transactions” and “Use of Proceeds.” The unaudited pro forma consolidated statement of operations also gives pro forma effect to the Phoenix Coal acquisition. The unaudited pro forma consolidated balance sheet assumes this offering and the transactions related to this offering occurred as of March 31, 2010. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2009 assume the Phoenix Coal acquisition, this offering and the transactions related to this offering occurred as of January 1, 2009. The unaudited pro forma consolidated statements of operations for the quarter ended March 31, 2010 assume this offering and the transactions related to this offering occurred as of January 1, 2009. We have not given pro forma effect to incremental selling, general and administrative expenses of approximately $3.0 million that we expect to incur as a result of being a publicly traded partnership.
 
For a detailed discussion of the following table, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following table should also be read in conjunction with “Summary — The Transactions,” “Use of Proceeds,” “Business — Our History,” the historical consolidated financial statements of Oxford Mining Company and our unaudited pro forma consolidated financial statements and audited consolidated financial statements included elsewhere in this prospectus. Among other things, those historical and pro forma consolidated financial statements include more detailed information regarding the basis of presentation for the information in the following table.
 
The following table presents a non-GAAP financial measure, Adjusted EBITDA, which we use in our business as it is an important supplemental measure of our performance. Adjusted EBITDA represents net income (loss) attributable to our unitholders before interest, taxes, depreciation, depletion and amortization, gain from purchase of a business, amortization of below-market coal sales contracts and non-cash equity compensation expense. This measure is not calculated or presented in accordance with GAAP. We explain this measure below and reconcile it to net income (loss) attributable to our unitholders, its most directly comparable financial measure calculated and presented in accordance with GAAP.
 


76


Table of Contents

                                                                                     
                                        Pro Forma Oxford
    Oxford Mining Company
    Oxford Resource Partners, LP
    Resource Partners, LP
    (Predecessor)     (Successor)     (Successor)
            Period
    Period
                         
            from
    from
                         
    Year
  Year
  January 1,
    August 24,
  Year
  Year
            Year
  Quarter
    Ended
  Ended
  2007 to
    2007 to
  Ended
  Ended
            Ended
  Ended
    December 31,
  December 31,
  August 23,
    December 31,
  December 31,
  December 31,
  Quarter Ended March 31,     December 31,
  March 31,
    2005   2006   2007     2007   2008   2009   2009   2010     2009   2010
                              (unaudited)     (unaudited)
    (in thousands, except per ton amounts)
Statement of Operations Data:
                                                                                   
Revenues:
                                                                                   
Coal sales
          $ 141,440     $ 96,799       $ 61,324     $ 193,699     $ 254,171     $ 67,377     $ 76,756       $ 312,490     $ 76,756  
Transportation revenue
            27,771       18,083         10,204       31,839       32,490       8,660       9,530         37,221       9,530  
Royalty and non-coal revenue
            6,643       3,267         1,407       4,951       7,183       2,402       1,774         7,183       1,774  
                                                                                     
Total revenues
            175,854       118,149         72,935       230,489       293,844       78,439       88,060         356,894       88,060  
Costs and expenses:
                                                                                   
Cost of coal sales (excluding DD&A, shown separately)
            106,657       70,415         40,721       151,421       170,698       40,825       55,186         208,574       53,254  
Cost of purchased coal
            22,159       17,494         9,468       12,925       19,487       8,505       7,859         29,792       7,859  
Cost of transportation
            27,771       18,083         10,204       31,839       32,490       8,660       9,530         37,221       9,530  
Depreciation, depletion, and amortization
            12,396       9,025         4,926       16,660       25,902       5,688       8,777         41,369       11,270  
Selling, general and administrative expenses
            2,097       3,643         2,114       9,577       13,242       3,101       3,535         25,735       3,458  
                                                                                     
Total costs and expenses
            171,080       118,660         67,433       222,422       261,819       66,779       84,887         342,691       85,371  
                                                                                     
Income (loss) from operations
            4,774       (511 )       5,502       8,067       32,025       11,660       3,173         14,203       2,689  
Interest income
            30       26         55       62       35       11       1         39       1  
Interest expense
            (3,672 )     (2,386 )       (3,498 )     (7,720 )     (6,484 )     (1,123 )     (1,833 )       (7,906 )     (1,978 )
Gain from purchase of business(1)
                                      3,823                     3,823        
                                                                                     
Net income (loss)
            1,132       (2,871 )       2,059       409       29,399       10,548       1,341         10,159       712  
Less: Net income attributable to noncontrolling interest
                  (682 )       (537 )     (2,891 )     (5,895 )     (1,165 )     (1,628 )       (5,895 )     (1,628 )
                                                                                     
Net income (loss) attributable to Oxford Resource Partners, LP unitholders
          $ 1,132     $ (3,553 )     $ 1,522     $ (2,482 )   $ 23,504     $ 9,383     $ (287 )     $ 4,264     $ (916 )
                                                                                     
Statement of Cash Flows Data:
                                                                                   
Net cash provided by (used in):
                                                                                   
Operating activities
          $ 16,236     $ 17,634       $ (8,519 )   $ 33,992     $ 37,183     $ 10,502     $ 8,341                    
Investing activities
            (13,547 )     (16,619 )       (98,745 )     (23,942 )     (49,528 )     (7,482 )     (10,280 )                  
Financing activities
            (2,548 )     (234 )       106,724       4,494       532       2,442       (137 )