Image source: Alliance Resource Partners.

What: Alliance Holdings GP, L.P. (NASDAQ: AHGP) units rose 29.5% last month. That's a pretty impressive gain for any company, let alone a coal-related one. But what's more interesting is that Alliance Resource Partners (ARLP -2.80%), the company that Alliance Holdings runs as its general partner (GP), only advanced 7.5% during the month. There is something notable to read into this.  

So what: Alliance Holdings is the GP for Alliance Resource Partners. This means that Alliance Holdings gets paid to run the limited partnership (LP) of Alliance Resource Partners. But it also gets incentive payments based on the distributions paid by the LP. Those incentives increase materially as distributions go up, so Alliance Holdings is something of a leveraged play on distribution growth at the LP.

Which is why this year has been kind of hard on Alliance Holdings. The LP that it runs trimmed its distribution in late April, which the market had pretty much been expecting. Alliance Holding's leverage to distribution hikes goes the other way when there are distribution cuts. So, by the time the LP cut its distribution, Alliance Holdings had already cut its dividend once and its shares were down nearly 15% through the end of April while Alliance Resource Partners was actually up around 12% despite the distribution cut. Alliance Holdings initiated a second distribution cut when the LP trimmed for the first time.

Image source: Alliance Resource Partners.

The leverage is notable, since Alliance Holdings ended up cutting its distributions by nearly 45% this year compared to Alliance Resource Partners' cut of "just" 35%. But in early June Alliance Resource Partners gave a presentation that painted a fairly upbeat outlook for the future. And as investors have started to get a little more positive about Alliance Resource Partners' prospects, they've become even more excited by the upside potential of GP Alliance Holdings, which helps explain the notable difference in the unit price increases in June.

Now what: Coal is still a fuel laboring under intense social and economic pressures. However, Alliance Holdings and Alliance Resource Partners have both held up reasonably well compared to peers, many of which have been forced into bankruptcy. Alliance is nowhere near that point. So, if you are a contrarian and think coal has a future despite the negative view of coal, Alliance Holdings and Alliance Resource Partners are both good investment options. Just note that Alliance Holdings is likely to be the more volatile of the pair.