Natural Resource Partners Q2 2024 Earnings Report

Natural Resource Partners EPS Results

• Actual EPS: $2.29
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Natural Resource Partners Revenue Results

• Actual Revenue: $65.54 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Natural Resource Partners Announcement Details

• Quarter: Q2 2024
• Date: 8/7/2024
• Time: N/A
• Conference Call Date: Wednesday, August 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 Q2 2024 Earnings Call Transcript

Key Takeaways

• NRP generated $57 million of free cash flow in Q2 and $287 million over the last 12 months, reducing total financial obligations by 35% year-over-year to approximately $240 million.
• During Q2, the company eliminated its final warrants and redeemed $40 million of preferred equity, leaving only $32 million of preferreds outstanding and using lower-cost revolver borrowings to optimize its capital structure.
• Metallurgical coal prices softened amid weaker steel demand but remain above historical norms, while thermal coal prices benefited from summer heat and an uptick in international demand despite long-term U.S. declines.
• The soda ash segment saw Q2 net income fall by $23 million to $4 million and distributions drop to $8 million, pressured by new global capacity, though management maintains a positive long-term outlook.
• NRP continues to explore carbon neutral initiatives—including CO₂ sequestration, lithium, geothermal, wind, and solar projects—although progress has slowed amid regulatory and political uncertainty.

Presentation

[Operator]

Good morning, and welcome to the Natural Resource Partners L.P. second quarter 2024 earnings conference call. My name is Emma, and I will be your conference manager. 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, again, press the star one. At this time, I would 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 Second 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 second 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 coal 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 $57 million of free cash flow in the second quarter and $287 million of free cash flow over the last twelve months. While we began to experience the negative impacts of lower metallurgical coal and soda ash prices in the first half of the year, we continue to generate robust free cash flow and make steady 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 decrease of 35% from one year ago. While we believe lower prices for coal and soda ash will be with us for the foreseeable future, we expect to continue generating sufficient cash to achieve our goal of paying off all financial obligations.

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

In the second quarter of 2024, we eliminated the final tranche of warrants and redeemed $40 million of preferred equity, leaving only $32 million of preferreds remaining. We paid off the warrants and preferreds with a combination of internally generated cash and lower-cost revolver borrowings. We expect to generate sufficient cash to pay down the revolver borrowings well in advance of the revolver's maturity date. We remain steadfast in our belief that this is the best strategy to maximize the intrinsic value of the partnership. Metallurgical coal prices drifted lower during the quarter as slowing global economic growth led to softening demand for steel. Despite recent weakness, metallurgical prices remain above historical norms, and we believe that long-term demand trends for steel, industry labor shortages, and limited investment in new metallurgical coal supply will provide reasonable support for metallurgical prices for the foreseeable future.

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

Thermal coal prices improved in the second quarter, driven by above-average summer heat in the United States and an uptick in international demand. These positives continued to be partially offset by low-priced North American natural gas and the continued long-term secular decline in U.S. demand for thermal coal. Turning to our soda ash investment, we received an $8 million cash distribution from ÅžiÅŸecam Wyoming in the second quarter of 2024, but was paid in connection with the first quarter 2024 performance. This distribution reflects the significant decline in soda ash prices experienced in recent months, resulting from the flood of new production that has come online over the past year.

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

We expect soda ash prices and distributions from our soda ash investment to remain under pressure for the foreseeable future, as we believe it will take several years for the global market to fully absorb this new capacity. These near-term challenges do not, however, impact our positive long-term outlook for our soda ash business. We are one of the world's lowest-cost producers of a product that has favorable long-term fundamentals, driven by urbanization, the mega trends for renewable energy, and the electrification of the global auto fleet. Our soda ash business remains a key asset in generating value for NRP unit holders today and in the long run.

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

We continue to explore opportunities to lease our mineral and surface assets for permanent underground carbon dioxide sequestration or sequestration, lithium production, and the generation of electricity using geothermal, wind, and solar energy, activities that we collectively call Carbon Neutral Initiatives, or CNI for short. Activity has slowed in the CNI space over the course of 2024, as project developers have grown more cautious of making large capital commitments in light of an uncertain regulatory and political environment... While we believe the potential upside from our CNI assets is significant, while requiring no capital expenditures by NRP, these industries are still decades away from full development, as you know. And with that, I will now turn the call over to Chris to cover our financial results.

[Chris Zolas, CFO at Natural Resource Partners L.P.]

Wonderful. Thank you, Craig. In the second quarter of 2024, NRP generated $46 million of net income and $57 million of operating and free cash flow. Moving to our Mineral Rights segment results, it generated $53 million of net income, $56 million of operating cash flow, and $57 million of free cash flow during the second quarter of 2024. When compared to the prior year period, our Mineral Rights segment net income was relatively flat, as a decrease in coal royalty revenue, primarily due to weakened steel demand, was offset by non-recurring items, which included a $5 million gain on asset sales and the receipt of $2 million from a carbon-neutral initiative transaction.

[Chris Zolas, CFO at Natural Resource Partners L.P.]

Mineral Rights segment's operating cash flow and free cash flow increased $1 million, despite the decrease in coal sales volumes and pricing, primarily due to the timing of cash payments and the payment from the carbon-neutral initiative transaction. Regarding our second quarter 2024 metallurgical thermal coal royalty mix, metallurgical coal made up approximately 75% of our coal royalty revenues and 60% of our sales volumes. Shifting to our Soda Ash segment, net income in the second quarter of 2024 was $4 million, a decrease of $23 million as compared to the prior year quarter. This decrease was due to the lower sales prices, primarily driven by the significant increased supply from China.

[Chris Zolas, CFO at Natural Resource Partners L.P.]

Free cash flow from this segment was $8 million in the second quarter of 2024, a decrease of $25 million as compared to the prior year quarter. As we've been communicating, soda ash pricing has dramatically declined from the record highs seen last year, and until the market is able to absorb the additional supply from China, we expect prices to remain muted and our distributions received from ÅžiÅŸecam to reflect the business's performance. Changing over to our Corporate and Financing segment. In the second quarter of 2024, we continued to make steady progress towards our goal of eliminating our financial obligations. We settled the remaining $0.3 million of our outstanding warrants with $10 million of cash and issuing a bit over 89,000 common units, and we retired $40 million of preferred units at par with cash.

[Chris Zolas, CFO at Natural Resource Partners L.P.]

During 2024, in total, we've permanently retired 1.5 million warrants, using $66 million of cash and issuing just under 288,000 common units. We permanently retired 40 million of preferred units at par with cash. As a result, at the end of the second quarter, we had just over $240 million of remaining financial obligations, made up of $211 million of debt and just under 32 million of preferred units.

[Chris Zolas, CFO at Natural Resource Partners L.P.]

For the Corporate and Financing segment's financial results, net income and free cash flow decreased $1 million during the second quarter of 2024 compared to the prior year quarter, primarily due to higher interest expense and cash paid for interest, because increased borrowings outstanding on our credit facility in 2024 that were used to settle the preferred units and the remaining warrants. Lastly, regarding our quarterly distributions, in May 2024, we declared and paid a first quarter distribution of $0.75 per common unit and a $2.15 million cash distribution to our preferred unit holders. Today, we announced our second quarter distribution of $0.75 per common unit and a $1 million cash distribution to our preferred unit holders to be paid later this month.

[Chris Zolas, CFO at Natural Resource Partners L.P.]

With that, I'll turn the call back over to Emma for questions.

[Operator]

Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. We will pause for a moment to compile a Q&A roster. At this time, we have no questions. Craig Nunez, I turn the call back over to you for closing remarks.

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

Thank you, operator, and I'd like to thank everyone for joining us today and for your interest in NRP. We have a good year ahead of us, I believe, and I look forward to going on the journey with you. Have a good day, and goodbye.

[Operator]

This concludes today's conference call. Thank you for attending. You may now disconnect.

Participants

Executives

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