Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number 001-34892

RHINO RESOURCE PARTNERS LP

(Exact name of registrant as specified in its charter)

(859) 389-6500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes  o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o  Yes  o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes  x  No

As of May 13, 2011, 12,419,153 common units and 12,397,000 subordinated units were outstanding.

Table of Contents

TABLE OF CONTENTS

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain “forward-looking statements”. Statements included in this report that are not historical facts, that address activities, events or developments that we expect or anticipate will or may occur in the future, including things such as plans for growth of the business, future capital expenditures, competitive strengths, goals, references to future goals or intentions or other such references are forward-looking statements. These statements can be identified by the use of forward-looking terminology, including “may,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or similar words. These statements are made by us based on our past experience and our perception of historical trends, current conditions and expected future developments as well as other considerations we believe are appropriate under the circumstances. Whether actual results and developments in the future will conform to our expectations is subject to numerous risks and uncertainties, many of which are beyond our control. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements.

Any differences could be caused by a number of factors, including, but not limited to: changes in governmental regulation of the mining industry or the electric utility industry; adverse weather conditions and natural disasters; weakness in global economic conditions; decreases in demand for electricity and changes in demand for coal; poor mining conditions resulting from geological conditions or the effects of prior mining; equipment problems at mining locations; the availability of transportation for coal shipments; the availability and costs of key supplies and commodities such as steel, diesel fuel and explosives; the availability and prices of competing electricity generation fuels; our ability to secure or acquire high-quality coal reserves; and our ability to find buyers for coal under favorable supply contracts. These and other risks are described in our Annual Report on Form 10-K for the year ended December 31, 2010. In addition, we may be subject to unforeseen risks that may have a materially adverse effect on us.  Accordingly no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements.

The forward-looking statements speak only as of the date made, and, other than as required by law, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

1

Table of Contents

PART I.—FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)

RHINO RESOURCE PARTNERS LP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands)

 See notes to unaudited condensed consolidated financial statements.

2

Table of Contents

RHINO RESOURCE PARTNERS LP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(In thousands)

 See notes to unaudited condensed consolidated financial statements.

3

Table of Contents

RHINO RESOURCE PARTNERS LP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 See notes to unaudited condensed consolidated financial statements.

4

Table of Contents

RHINO RESOURCE PARTNERS LP

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2011 AND DECEMBER 31, 2010 AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

1. BASIS OF PRESENTATION AND ORGANIZATION

Basis of Presentation and Principles of Consolidation— The accompanying unaudited interim financial statements include the accounts of Rhino Resource Partners LP (the “Partnership”) and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

For income, expense and cash flow items for the three months ended March 31, 2010, the Partnership has disclosed figures of Rhino Energy LLC (the ‘‘Predecessor’’ or the ‘‘Operating Company’’) as the Partnership had no operations during this period. The closing of the Partnership’s initial public offering (‘‘IPO’’) and the contribution of the membership interests in the Operating Company to the Partnership did not result in any basis change of the assets of the Predecessor as the Partnership and Predecessor were entities under common control and the Predecessor was contributed to the Partnership and continued operations in consistently the same manner after being contributed to the Partnership. For these reasons as well as year-to-year comparability of financial results, the income, expense and cash flow results of the Predecessor are presented for the three months ended March 31, 2010.

Unaudited Interim Financial Information—The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The condensed consolidated statement of financial position as of March 31, 2011, condensed consolidated statements of operations for the three month periods ended March 31, 2011 and 2010 and the condensed consolidated statements of cash flows for the three months ended March 31, 2011 and 2010 include all adjustments (consisting of normal recurring adjustments) which the Partnership considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed consolidated statement of financial position as of December 31, 2010 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”). The Partnership filed its Annual Report on Form 10-K for the year ended December 31, 2010 with the Securities and Exchange Commission (“SEC”), which included all information and notes necessary for such presentation. The results of operations for the interim period are not necessarily indicative of the results to be expected for the year or any future period. These unaudited interim financial statements should be read in conjunction with the audited financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC.

Organization—The Partnership is a Delaware limited partnership formed on April 19, 2010 to acquire the Predecessor, an entity engaged primarily in the mining and sale of coal. The Partnership had no operations during the period from April 19, 2010 (date of inception) to October 5, 2010 (the consummation of the IPO of the Partnership). The Operating Company and

5

Table of Contents

its wholly owned subsidiaries produce and market coal from surface and underground mines in Kentucky, Ohio, West Virginia, and Utah and also has one underground mine located in Colorado that was operated during 2010, but was temporarily idled at year-end 2010 due to the expiration of the sole customer contract at this location. The majority of the Operating Company’s sales are made to domestic utilities and other coal-related organizations in the United States. The Operating Company was formed in April 2003 and has been built via acquisitions.

Initial Public Offering

On October 5, 2010, the Partnership completed its IPO of 3,730,600 common units, representing limited partner interests in the Partnership, at a price of $20.50 per common unit. Of the common units issued, 486,600 units were issued in connection with the exercise of the underwriters’ option to purchase additional units. Net proceeds from the offering were approximately $71.3 million, after deducting underwriting discounts of approximately $5.2 million, of which approximately $62.0 million was received by the Partnership and approximately $9.3 million was paid directly to the Partnership’s sponsor, Wexford Capital LP (“Wexford Capital”), as reimbursement for capital expenditures incurred by affiliates of Wexford Capital with respect to the assets contributed to the Partnership in connection with the offering. The Partnership used the net proceeds from this offering, less offering expenses of approximately $3.0 million incurred at the IPO date, and a related capital contribution by Rhino GP LLC, the Partnership’s general partner (the “General Partner”) of approximately $10.4 million, to repay approximately $69.4 million of outstanding indebtedness under the Operating Company’s credit facility. The Partnership paid additional offering expenses after the IPO date of approximately $0.7 million for total offering expenses of approximately $3.7 million.

In connection with the closing of the IPO, the owners of the Operating Company contributed their membership interests in the Operating Company to the Partnership, and the Partnership issued 12,397,000 subordinated units representing limited partner interests in the Partnership and 8,666,400 common units to Rhino Energy Holdings LLC, an affiliate of Wexford Capital, and issued incentive distribution rights to the General Partner. Upon the closing of the IPO, and as required by the Operating Company’s credit agreement by and among the Operating Company, as borrower, and its subsidiaries as guarantors, and PNC Bank, National Association, as agent, and the other lenders thereto (as amended from time to time, the “Credit Agreement”), the Partnership pledged 100% of the membership interests in the Operating Company to the agent on behalf of itself and the other lenders to secure the Operating Company’s obligations under the Credit Agreement.

Acquisition of Coal Property

In August 2010, the Predecessor acquired certain assets for cash consideration of approximately $15.0 million from the Trustee of the Federal Bankruptcy Court charged with the sale of the C. W. Mining Company assets. These assets are located in Emery and Carbon Counties, Utah. Prior to the purchase of the assets, the Operating Company formed a new wholly owned subsidiary, Castle Valley Mining LLC (“Castle Valley”).  Castle Valley in turn acquired the following assets and liabilities (of the former C.W. Mining Company) from the Operating Company:

6

Table of Contents

·                  the Coal Operating Agreement whereby Castle Valley becomes a sub-lessee of certain federal coal leases owned by the Bureau of Land Management;

·                  buildings, mining equipment, conveyor belts and belt structure, a truck loading facility and other mining assets; and

·                  reclamation or “end of mine” liabilities.

The Partnership staffed the location and rehabilitated the mine and equipment and began production from these assets at one underground mine in the first quarter of 2011. The coal produced and sold from these mining assets is being sold as steam coal.

The Partnership allocated the purchase price of $15.0 million to the assets and liabilities acquired based upon their respective fair values in accordance with Accounting Standards Codification (“ASC”) Topic 805. The fair value of the assets acquired and liabilities assumed in this transaction are as follows:

Although the responsibility of valuation remains with the Partnership’s management, the determination of the fair values of the various assets and liabilities acquired were based in part upon studies conducted by third-party professionals with experience in the appropriate subject matter. Because the fair value of the assets acquired exceeded the purchase price, the Partnership recorded a gain of $10.8 million in the third quarter of 2010. A gain resulted from this acquisition since the assets were purchased in a distressed sale out of bankruptcy.

Acquisition of Oil and Gas Mineral Rights

In the first quarter of 2011, the Partnership completed the acquisition of certain oil and gas mineral rights in the Cana Woodford region of western Oklahoma for a total purchase price of approximately $3.0 million. In addition, on May 13, 2011, the Partnership purchased additional oil and gas mineral rights in the Cana Woodford region for approximately $0.5 million. The Partnership expects royalty revenues to be generated from these mineral rights in future periods.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL

Investment in Joint Venture.  Investments in other entities are accounted for using the consolidation, equity method or cost basis depending upon the level of ownership, the Partnership’s ability to exercise significant influence over the operating and financial policies of the investee and whether the Partnership is determined to be the primary beneficiary. Equity method investments are recorded at original cost and adjusted periodically to recognize the Partnership’s proportionate share of the investees’ net income or losses after the date of

7

Table of Contents

investment. When net losses from an equity method investment exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Partnership resumes accounting for the investment under the equity method when the entity subsequently reports net income and the Partnership’s share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down when there is clear evidence that a decline in value that is other than temporary has occurred.

In May 2008, the Operating Company entered into a joint venture, Rhino Eastern LLC (“Rhino Eastern”), with Patriot Coal Corporation (“Patriot”) to acquire the Eagle mining complex. To initially capitalize the joint venture, the Operating Company contributed approximately $16.1 million for a 51% ownership interest in the joint venture, and accounts for the investment in the joint venture and its results of operations under the equity method. The Partnership’s exposure to potential losses the joint venture may incur is in proportion to the Partnership’s ownership interest in the joint venture. The Partnership considers the operations of this entity to comprise a reporting segment and has provided additional detail related to this operation in Note 17, ‘‘Segment Information.’’

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of March 31, 2011 and December 31, 2010 consisted of the following:

8

Table of Contents

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, including coal properties and mine development and construction costs, as of March 31, 2011 and December 31, 2010 are summarized by major classification as follows:

Depreciation expense for mining and other equipment and related facilities, depletion expense for coal properties, amortization expense for mine development costs, amortization expense for intangible assets and amortization expense for asset retirement costs for the three months ended March 31, 2011 and 2010 were as follows:

5. GOODWILL AND INTANGIBLE ASSETS

ASC Topic 350 addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Under the provisions of ASC Topic 350, goodwill and other intangible assets with indefinite useful lives are no longer amortized but instead tested for impairment at least annually.

9

Table of Contents

Goodwill as included in the Other category as of March 31, 2011 and December 31, 2010 consisted of the following:

Intangible assets as of March 31, 2011 consisted of the following:

Intangible assets as of December 31, 2010 consisted of the following:

The Partnership considers these intangible assets to have a useful life of seventeen years. The intangible assets are amortized over their useful life on a straight line basis.

The future total amortization expense for each of the five succeeding years related to intangible assets that are currently recorded in the unaudited condensed consolidated statement of financial position is estimated to be as follows at March 31, 2011:

10

Table of Contents

6. OTHER NON-CURRENT ASSETS

Other non-current assets as of March 31, 2011 and December 31, 2010 consisted of the following:

Debt issuance costs were approximately $4.3 million as of March 31, 2011 and December 31, 2010. Accumulated amortization of debt issuance costs were approximately $2.4 million and approximately $2.1 million as of March 31, 2011 and December 31, 2010, respectively.

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of March 31, 2011 and December 31, 2010 consisted of the following:

11

Table of Contents

8. DEBT

Debt as of March 31, 2011 and December 31, 2010 consisted of the following:

Senior Secured Credit Facility with PNC Bank, N.A.—The maximum availability under the credit facility by and among the Operating Company, the guarantors (including the Partnership) and lenders which are parties thereto, and PNC Bank, N.A. as administrative agent is $200.0 million. Borrowings under the line of credit bear interest which varies depending upon the grouping of the borrowings within the line of credit. At March 31, 2011, the Operating Company had borrowed $39.0 million at a variable interest rate of LIBOR plus 3.00% (3.27% at March 31, 2011) and an additional $2.6 million at a variable interest rate of PRIME plus 1.50% (4.75% at March 31, 2011). In addition, the Operating Company had outstanding letters of credit of $23.7 million at a fixed interest rate of 3.00% at March 31, 2011. The credit agreement expires in February 2013. At March 31, 2011, the Operating Company had not used $134.7 million of the borrowing availability. As part of the agreement, the Operating Company is required to pay a commitment fee of 0.5% on the unused portion of the borrowing availability. Borrowings on the line of credit are collateralized by all the unsecured assets of the Partnership.

The revolving credit commitment requires the Partnership to maintain certain minimum financial ratios and contains certain restrictive provisions, including among others, restrictions on making loans, investments and advances, incurring additional indebtedness, guaranteeing indebtedness, creating liens, selling or assigning stock. The Partnership was in compliance with all covenants contained in the credit agreement as of and for the period ended March 31, 2011.

Note payable to H&L Construction Co., Inc.— The note payable to H&L Construction Co., Inc. was originally a non-interest bearing note and the Partnership has recorded a discount for imputed interest at a rate of 5.0% on this note that is being amortized over the life of the note using the effective interest method. In 2009, the note was renegotiated and is now an interest bearing note as of December 31, 2009. The note payable matures in January 2015. The note is secured by mineral rights purchased by the Partnership from H&L Construction Co., Inc. with a carrying amount of approximately $11.7 million and approximately $11.8 million at March 31, 2011 and December 31, 2010, respectively.

12

Table of Contents

9. ASSET RETIREMENT OBLIGATIONS

The changes in asset retirement obligations for the three months ended March 31, 2011 and the year ended December 31, 2010 are as follows:

10. EMPLOYEE BENEFITS

Net periodic benefit cost for the three months ended March 31, 2011 and 2010 are as follows:

401(k) Plans—The Operating Company and certain subsidiaries sponsor defined contribution savings plans for all employees. Under one defined contribution savings plan, the Operating Company matches voluntary contributions of participants up to a maximum contribution based upon a percentage of a participant’s salary with an additional matching contribution possible at the Operating Company’s discretion. The expense under these plans for the three months ended March 31, 2011 and 2010 was as follows:

13

Table of Contents

11. EQUITY-BASED COMPENSATION

In October 2010, the General Partner adopted the Rhino Long-Term Incentive Plan (the “Plan” or “LTIP”). The Plan is intended to promote the interests of the Partnership by providing to employees, consultants and directors of the General Partner, the Partnership or affiliates of either incentive compensation awards to encourage superior performance. The LTIP provides for grants of restricted units, unit options, unit appreciation rights, phantom units, unit awards, and other unit-based awards.

As of March 31, 2011, the General Partner granted phantom units to certain of the Partnership’s employees and restricted units and unit awards to its directors. These grants were made in connection with the IPO completed in October 2010.

With the vesting of the first portion of the employees’ awards in early April 2011, the Compensation Committee of the board of directors of the General Partner elected to pay some of the awards in cash or a combination of cash and common units.  This election was a change in policy from December 31, 2010 since management had previously planned to settle all employee awards with units upon vesting as per the grant agreements.  This policy change resulted in a modification of all employee awards from equity to liability classification as of March 31, 2011.  The Partnership recorded approximately $0.1 million in incremental compensation expense for the three months ended March 31, 2011 due to the modification of these awards. The equity balance of approximately $0.2 million accrued as of December 31, 2010 for the non-vested awards was also reclassified from the Limited partners’ capital account to Accrued expenses and other in the current liability portion in the unaudited condensed consolidated statement of financial position as of March 31, 2011.

12. COMMITMENTS AND CONTINGENCIES

Coal Sales Contracts and Contingencies—As of March 31, 2011, the Partnership had commitments under sales contracts to deliver annually scheduled base quantities of approximately 3.1 million, approximately 2.2 million, and approximately 1.4 million tons of coal to 18 customers for the remainder of 2011, 5 customers in 2012 and 3 customers in 2013, respectively. Some of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of factors and indices.

Purchase Commitments—As of March 31, 2011, the Partnership had approximately 3.0 million gallons remaining on a commitment to purchase diesel fuel at fixed prices through December 2011 for approximately $7.9 million.

14

Table of Contents

Purchased Coal Expenses—The Partnership incurs purchased coal expense from time to time related to coal purchase contracts. In addition, the Partnership incurs expense from time to time related to coal purchased on the over-the-counter market (“OTC”). Purchase coal expense from coal purchase contracts and expense from OTC purchases for the three months ended March 31, 2011 and 2010 were as follows:

There were no outstanding coal purchase commitments as of March 31, 2011.

Leases—The Partnership leases various mining, transportation and other equipment under operating leases. The Partnership also leases coal reserves under agreements that call for royalties to be paid as the coal is mined. Lease and royalty expense for the three months ended March 31, 2011 and 2010 was as follows:

Joint Venture—Pursuant to the joint venture agreement with Patriot, the Partnership is required to contribute additional capital to assist in funding the development and operations of the joint venture. During the three months ended March 31, 2011 and 2010, the Partnership did not make any capital contributions. The Partnership may be required to contribute additional capital to the joint venture in subsequent periods.

15

Table of Contents

13. EARNINGS PER UNIT (“EPU”)

The following table presents a reconciliation of the numerators and denominators of the basic and diluted EPU calculations for the period ended March 31, 2011:

14. MAJOR CUSTOMERS

The Partnership had revenues or receivables from the following major customers that in each period equaled or exceeded 10% of revenues:

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The book values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of their respective fair values because of the immediate short-term maturity of these financial instruments. The carrying value of the Partnership’s debt instruments and notes receivable approximate fair value since effective rates for these instruments are comparable to market at March 31, 2011.

16

Table of Contents

16. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2011 excludes approximately $0.1 million of property additions, which are recorded in accounts payable.

17. SEGMENT INFORMATION

The Partnership produces and markets coal from surface and underground mines in Kentucky, West Virginia, Ohio and Utah and also has one underground mine located in Colorado that was temporarily idled at year-end 2010 due to the expiration of the sole customer contract at this location. The Partnership sells primarily to electric utilities in the United States. For the three months ended March 31, 2011, the Partnership has four reportable business segments: Central Appalachia (comprised of both surface and underground mines located in Eastern Kentucky and Southern West Virginia), Northern Appalachia (comprised of both surface and underground mines located in Ohio), Rhino Western (comprised of underground mines in Colorado and Utah) and Eastern Met (comprised solely of the joint venture with Patriot). Additionally, the Partnership has an Other category that is comprised of the Partnership’s ancillary businesses. Within the Northern Appalachia reporting segment, the Partnership has aggregated two operating segments (representing its Sands Hill and Hopedale mining complexes) that have similar geography and similar economic characteristics in terms of product sold, product quality and end customers. Within the Rhino Western reporting segment, the Partnership has aggregated two operating segments (representing its Colorado mine and Utah mining complex) that have similar geography and similar economic characteristics in terms of product sold, product quality and end customers. The Partnership has not provided disclosure of total expenditures by segment for long-lived assets, as the Partnership does not maintain discrete financial information concerning segment expenditures for long lived assets, and accordingly such information is not provided to the Partnership’s chief operating decision maker.

In interim periods for 2010, prior to reporting full-year December 31, 2010 results, the Partnership had included its Colorado mine in the Other category since this operation did not meet the quantitative thresholds requiring separate disclosure as a reportable segment. With the acquisition of the Utah mining complex in August 2010, the Partnership began to aggregate the Colorado mine and Utah mining complex as one reportable segment as discussed above. For comparability purposes, the segment data for previous interim periods has thus been reclassified to present the results of the Colorado mine in the Rhino Western segment instead of the Other category.

The Partnership has historically accounted for the joint venture under the equity method. Under the equity method of accounting, the Partnership has historically only presented limited information (net income). The Partnership considers this operation to comprise a separate operating segment and has presented additional operating detail, with corresponding eliminations and adjustments to reflect its percentage of ownership.

Reportable segment results of operations for the three months ended March 31, 2011 are as follows (Note: “DD&A” refers to depreciation, depletion and amortization):

17

Table of Contents

Reportable segment results of operations for the three months ended March 31, 2010 are as follows: