Natural Resource Partners Q1 2024 Earnings Report

Natural Resource Partners EPS Results

• Actual EPS: $3.83
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Natural Resource Partners Revenue Results

• Actual Revenue: $76.41 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Natural Resource Partners Announcement Details

• Quarter: Q1 2024
• Date: 5/7/2024
• Time: N/A
• Conference Call Date: Tuesday, May 7, 2024
• Conference Call Time: 9:00AM ET

Natural Resource Partners (NYSE:NRP) (NYSE: NRP) is a master limited partnership that acquires and manages royalty and other mineral interests in coal and other natural resources across North America and Australia. The partnership was formed in 2010 as a spin-out from a major U.S. coal producer and is headquartered in Fairmont, West Virginia. Its core business model centers on owning gross proceeds interests, gross royalty proceeds interests and fee minerals, which provide the right to receive a portion of revenues from mining and mineral production without operating the mines directly.

NRP’s U.S. portfolio spans the central Appalachian Basin, northern West Virginia, southwest Virginia, Colorado’s North Fork Valley, and northwest New Mexico and Arizona. These assets encompass both thermal and metallurgical coal deposits as well as fee mineral estates that cover precious and base metals. In Australia, the partnership holds an equity interest in a thermal coal development project in Queensland. By structuring its holdings around royalties and flow-through interests, NRP can benefit from multiple revenue streams tied to commodity prices and production levels while avoiding the capital expenditures and operating risks associated with direct mining operations.

Throughout its history, Natural Resource Partners has focused on growing its royalty footprint through strategic acquisitions of mineral interests sold by private and public mining companies. The board and management team leverage decades of experience in mineral leasing, asset evaluation and capital markets to identify and secure high-quality interests. This approach aims to deliver stable cash flows over the long term, making NRP an option for investors seeking exposure to coal and mineral royalties without direct operational involvement in resource extraction.

Natural Resource Partners Q1 2024 Earnings Call Transcript

Key Takeaways

• NRP generated $72 million of free cash flow in Q1 and $312 million over the last 12 months, driving a 45% year-over-year reduction in total obligations to $240 million.
• Commodity prices for metallurgical coal and soda ash have declined from record highs and are expected to remain volatile, suggesting lower free cash flow going forward.
• An oversupplied soda ash market, with new capacities in China, Turkey and the U.S., is pressuring prices and will likely result in reduced future distributions from Sissajam Wyoming.
• The partnership remains on track to eliminate all remaining debt and preferred equity while continuing common unit distributions to cover unitholder tax liabilities.
• NRP is exploring carbon sequestration, lithium production and renewable energy leases on its assets, offering potential upside without requiring additional capital investment.

Presentation

[Operator]

Thank you for standing by. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Natural Resource Partners L.P. First Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Tiffany Sammis, Manager of Investor Relations. You may begin.

[Tiffany Sammis, Manager of Investor Relations at Natural Resource Partners L.P.]

Thank you. Good morning, and welcome to the Natural Resource Partners First Quarter 2024 conference call. Today's call is being webcast, and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer, Chris Zolas, Chief Financial Officer, and Kevin Craig, Executive Vice President. Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP's Form 10-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures.

[Tiffany Sammis, Manager of Investor Relations at Natural Resource Partners L.P.]

Additional details and reconciliations to the most directly comparable GAAP measures are included in our first quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular lessee or detailed market fundamentals. Now, I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Thank you, Tiffany, and good morning, everyone. NRP generated $72 million of free cash flow in the first quarter and $312 million of free cash flow over the last twelve months. This robust cash generation has allowed us to make noteworthy progress toward our goal of eliminating all financial obligations. As of today, our total remaining obligations, which include debt and preferred equity, stand at approximately $240 million, a 45% decrease from just one year ago. Since embarking on our de-risking strategy in 2015, we have settled 100% of the outstanding warrants, paid off nearly 90% of our debt, and redeemed more than 70% of the preferred equity.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

We stand firm in our belief that this is the best strategy to maximize the intrinsic value of our business, which should in turn maximize long-term unitholder returns. The primary drivers of our recent strong performance were historically high prices for both metallurgical coal and soda ash, which have declined from record highs and will likely remain volatile for the foreseeable future. We believe that muted investment in new met coal supply will provide support for prices, but not at the record high levels seen in recent years. Soda ash prices are also under pressure from a significant increase in global capacity from new projects in China, Turkey, and the United States. We believe it will take several years for the market to absorb these new supplies.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

While we expect the partnership's free cash flow to decline from 2023's record level due to these factors, our capital structure is solid and improving, and we anticipate the business will continue to generate robust levels of free cash flow for the foreseeable future. We expect to remain on track to pay off all debt and preferred stock while paying common unit distributions to help cover unitholder tax liabilities associated with owning NRP common units. Our mineral rights business generated $70 million of free cash flow during the first quarter of 2024. Metallurgical coal prices declined in Q1 versus 2023, but remained generally at or above historical norms.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

While we expect met prices to remain volatile, global supply and demand remains in reasonable balance, and we believe it will stay that way for the foreseeable future due to the long-term demand trends and continued modest investment in new met supply. Thermal coal prices experienced significant volatility during the quarter as high inventory levels, driven by mild weather and low-priced natural gas, put downward pressure on U.S. domestic demand. While we do not believe thermal coal prices will rebound to the record high levels seen in recent years, underinvestment in new sources of thermal coal production and solid international demand should provide price support for the foreseeable future at levels that are competitive when compared to historical norms. Longer term, we believe the domestic thermal market will continue its long-term secular decline.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Moving to soda ash, we received a $14 million cash distribution from Sisecam Wyoming in the first quarter of 2024. This quarterly distribution was paid in connection with the fourth quarter 2023 performance, when soda ash prices were much higher than they were during the first quarter. The soda ash market continues to remain oversupplied, putting downward pressure on prices, a trend that began in the second half of last year as new supply flooded the market. Our lower first quarter net income compared to prior quarters reflects this weaker price environment, and we expect future distributions from Sisecam Wyoming to adjust accordingly.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Despite the present challenging soda ash market, our long-term outlook for our investment in Sisecam Wyoming remains positive. We are one of the world's lowest cost producers of a product that has favorable long-term fundamentals, driven by urbanization, the megatrends for renewable energy, and the electrification of the global auto fleet. Our soda ash business remains a key asset in generating value for NRP unitholders today and in the long run. We continue to explore opportunities to lease our mineral and surface assets for permanent underground CO2 sequestration, forest sequestration, lithium production, and the generation of electricity using geothermal, wind, and solar energy. While we believe the carbon-neutral industry is still decades from full development, the potential upside from our carbon-neutral initiatives could be significant, all while requiring no capital investment by NRP. And with that, I'll turn the call over to Chris to cover the financial results.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Thank you, Craig. In the first quarter of 2024, NRP generated $71 million of operating cash flow and $56 million of net income, despite weakening in both coal and soda ash markets. Moving to our segment results, our mineral rights segment generated $70 million of operating cash flow and $61 million of net income during the first quarter of 2024. When compared to the prior year, our mineral rights segment's net income and operating cash flow decreased $8 million and $4 million, respectively, primarily due to lower metallurgical coal prices. Regarding our metallurgical and thermal coal royalty mix, metallurgical coal made up approximately 75% of our coal royalty revenues and 50% of sales volumes in the first quarter of 2024.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Shifting to our soda ash business segment, net income in the first quarter of 2024 decreased $14 million as compared to the prior year quarter, due to increased supply from China that resulted in significantly lower international sales prices, slightly lower domestic sales prices, and lower sales volumes compared to the prior year quarter. Operating cash flow from this segment increased $4 million as compared to the prior year quarter. As Craig mentioned earlier, the distribution we received in Q1 of 2024 was paid in connection with the fourth quarter of 2023 performance, a period with higher international and domestic sales prices.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Moving to our corporate and financing segment, first quarter 2024 net income and operating cash flow decreased $1 million, primarily due to higher interest expense and cash paid for interest because of increased borrowings outstanding on the credit facility that were used to settle warrants. In the first quarter of 2024, we settled 1.2 million warrants with a combination of $56 million of cash and issuing a bit less than 200,000 NRP common units. And in April, we settled the remaining 0.3 million of our outstanding warrants with $10 million of cash in issuing a bit over 89,000 common units. After this April settlement, no warrants remain outstanding.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

In the first quarter of 2024, we utilized the accordion feature on our existing credit facility and added $45 million of borrowing capacity to reach the full $200 million amount available to us. This represents an increase in borrowing capacity of 54% from just 1 year ago. We've used this credit facility along with our free cash flow to permanently retire preferred equity and warrants, and we'll continue doing so to redeem the remaining $72 million of preferred equity. As Craig mentioned earlier, we've made significant progress on our long-term goal to eliminate our obligations, and we remain laser-focused on eliminating our remaining obligations, made up of debt and preferred equity. I'd like to point out that the potentially dilutive effect of pro...

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

of preferred equity and warrants has been significantly reduced by a redemption of $178 million of the original $250 million of preferred equity and the settlement of warrants. As evidence, the diluted weighted average number of common units in Q1 2024 decreased almost 20% compared to the prior year quarter. Consequently, our Q1 2024 diluted net income per common unit increased 11% compared to the prior year quarter, even though our basic EPU was down 6% compared to the prior year quarter. Finally, regarding our quarterly distributions, in February 2024, we paid a fourth quarter distribution of $0.75 per common unit and a $2 million cash distribution to our preferred unitholders.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

In March of 2024, we announced and paid a special distribution of $4.44 per common unit to help cover unitholder tax liabilities associated with owning NRP's common units in 2023. And today, we announced our first quarter distribution of $0.75 per common unit and a $2 million cash distribution to our preferred unitholders. And with that, I'll turn the call back over to our operator for questions.

[Operator]

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. The first question comes from the line of Nat Stewart of N.A.S. Capital, LLC. Please go ahead.

[Nathaniel Stewart, Analyst at N.A.S. Capital, LLC]

Hi, good morning. I just had one question. Is there any update on anything going on with the existing agreements for the carbon storage? Is there any updates on the permitting process or any information you might have on what's going on there?

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Unfortunately, we do not.

[Nathaniel Stewart, Analyst at N.A.S. Capital, LLC]

Okay. All right, well, that's my question. Thanks.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Thank you.

[Operator]

There are no questions. I will now turn the conference back over to Craig Nunez for closing remarks.

[Craig Nunez, President and COO at Natural Resource Partners L.P.]

Thank you, operator, and thank everyone for participating on our call, and thank you for your continued support of NRP. Have a great day. Bye.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Craig Nunez, President and COO
• Tiffany Sammis, Manager of Investor Relations

Analysts

• Nathaniel Stewart, Analyst at N.A.S. Capital, LLC