Investors pushed Alliance Resource Partners, L.P. (NASDAQ:ARLP) stock higher for most of 2016. In many ways, it's one of the best situated coal miners. However, the coal industry remains under extreme stress, and the outlook is still weak... overall. This miner's 2016 performance proves that.

Here's why my forecast for Alliance regaining its mojo even if other miners continue to falter.

Rough in coal land

There's no question that coal has been hit pretty hard over the last few years, with major miners like Peabody Energy and Arch Coal tumbling into bankruptcy. For a long time Alliance Resource Partners managed to buck the general trend, increasing production from its Illinois Basin mines while competitors were forced to cut back. Alliance was, basically, stealing market share from miners in other regions like the Powder River Basin.

An image of Alliance Resource Partners coal miners in a meeting.

Image source: Alliance Resource Partners, L.P.

That all changed in 2016, when Alliance had to dig in and focus on fundamental operations just like everyone else. Full-year coal production declined roughly 15% year over year in 2016 from 2015's record levels. Coal sales dipped by around 9%. Although a push toward clean power options like solar and wind has been an issue for coal, which is a heavy carbon polluter, the bigger problem has been cheap natural gas -- it's has been gaining share in the utility industry at the expense of coal. The gains made by wind and solar are just adding insult to injury. But don't count coal out yet... and certainly don't give up on Alliance.

Still important

President Obama had a very aggressive environmental agenda that many in the coal space believed was focused on pushing coal out of the power picture. But even his plans couldn't completely remove coal, with the U.S. Energy Information Administration (EIA) projecting that coal use would decline but still fuel a significant portion of the electricity the U.S. generates through 2050.

But according to the EIA, if Obama-era clean power rules get rolled back, coal's share of the power market remains roughly stable through 2050. With Donald Trump now president, it looks increasingly likely that those environmental rules will at least be softened.

A graph of US EIA energy projects that show coal use out to 2050

EIA projects coal remains a big energy player, even moreso if stringent environmental regulations get rolled back. Image source: U.S. Energy Information Administration.

Here's the thing: Alliance operates in the Illinois Basin coal region, which is in what the EIA calls the interior. Production from the interior has remained fairly constant through coal's downturn, while the other regions have seen material declines. That helps account for Alliance's ability to grow production through 2015. The EIA outlook with Obama-era regulations calls for production from the interior region to hold relatively steady through 2050 while the other regions continue to see declines.

If those regulations get rolled back, however, coal production from the interior is expected to grow, while the other major coal regions flatline. The takeaway from all of this is that even in the worst case scenario, Alliance Resource Partners is working in the best positioned coal region. In the best case, which is looking increasingly likely, Alliance could start expanding production again.

And that's why Alliance's fourth quarter performance should inspire some optimism. Despite the full year production decline, the coal miner's sales volume in the fourth quarter was near record levels. Couple that with cost reductions that have been put in place through the industry downturn, and EBITDA was up nearly 12% year over year (if you include one-time charges in the 2015 numbers, EBITDA was up 74%). In other words, even though coal is feeling some pain today, Alliance has adjusted its business and, dare I suggest it, is even doing pretty well given the circumstances. Maybe the miner never lost its mojo in the first place!

An image of EIA projects for coal regions showing that the interior is the strongest positioned coal region.

EIA sees vastly different futures for the major coal regions in the United States. Image source: U.S. Energy Information Administration.

A mojo-inspiring future

There's no question that thermal coal still has some material headwinds to deal with, not the least of which is volatile commodity prices. But coal remains a key player in the future of energy, and Alliance Resource Partners is operating in one of the most desirable regions. The partnership's fourth quarter sales volume hints that the downturn may be abating, at least for Alliance's Illinois Basin coal.

If you are looking at the coal sector, Alliance should be on your short list. Sure, 2016 wasn't the best year for the business, but Alliance has managed the downturn in stride and looks poised to do relatively well even in the worst case scenario. If Trump holds true to his word and supports coal, however, there could be notable production growth in Alliance's future again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.