Business Overview
Natural Resource Partners LP (NRP) is a diversified natural resource company engaged primarily in the business of owning, managing, and leasing a diverse portfolio of mineral properties in the United States. The partnership’s operations are organized into two core segments: Mineral Rights and Soda Ash.
The Mineral Rights segment encompasses approximately 13 million acres of mineral interests and other subsurface rights across the United States, providing critical inputs for the manufacturing of steel, electricity, and basic building materials. The Soda Ash segment represents the partnership’s 49% non-controlling equity interest in Sisecam Wyoming, a trona ore mining and soda ash production business located in the Green River Basin of Wyoming.
Company History
Natural Resource Partners has a rich history dating back to its founding in 2002. The company has consistently focused on strategically managing its mineral rights assets and optimizing its portfolio. In 2017, NRP took a significant step to strengthen its financial position by issuing 250,000 Class A Convertible Preferred Units to Blackstone and GoldenTree Asset Management, which provided the company with substantial capital to fund its operations and growth. Concurrently, the company issued warrants to purchase common units.
The partnership faced considerable challenges in 2020 when it recorded significant impairment charges due to the impact of the COVID-19 pandemic on the coal industry. During this difficult period, NRP demonstrated its resilience by focusing on cost management and capital discipline to navigate the turbulent market environment.
In recent years, Natural Resource Partners has made substantial progress in its deleveraging efforts. The partnership has been steadily redeeming its preferred units and settling its outstanding warrants. By September 2024, NRP reached a significant milestone by redeeming all of its remaining preferred units and settling all of its outstanding warrants, effectively eliminating these financial obligations from its capital structure.
Market Landscape and Recent Performance
Natural Resource Partners has navigated a challenging market landscape in recent years, weathering fluctuations in commodity prices and shifting demand patterns across its core business lines. Despite these headwinds, the partnership has demonstrated a proactive approach to cash management and debt reduction, aligning with its long-term strategy to enhance shareholder value.
In the third quarter of 2024, Natural Resource Partners generated $39 million in net income, $54 million in operating cash flow, and $55 million in free cash flow. While these results reflected a decline compared to the prior-year quarter, they underscore the partnership’s ability to generate robust cash flow even in the face of softer market conditions.
Segment Performance
The Mineral Rights segment, which accounts for the majority of the partnership’s revenue and earnings, saw net income decrease by $20 million and both operating cash flow and free cash flow decline by $7 million compared to the third quarter of 2023. This was primarily due to weaker coal market conditions, with lower metallurgical and thermal coal sales prices during the period.
In the Soda Ash business, net income declined by $4 million, and free cash flow decreased by $17 million compared to the prior-year quarter. This was driven by significantly lower soda ash prices, reflecting an oversupplied market and weaker demand for construction-related flat glass.
Strategic Initiatives
Despite these near-term challenges, Natural Resource Partners remains focused on executing its long-term strategy. In the third quarter, the partnership reached a significant milestone by redeeming the remaining $32 million in outstanding preferred units, eliminating all preferred equity obligations. Additionally, the partnership settled the final tranche of its outstanding warrants, further strengthening its capital structure.
Financials
Looking ahead, Natural Resource Partners expects the current market softness across its key commodities to persist in the near term. However, the partnership is well-positioned to weather these headwinds, with a robust cash flow profile and a steadfast commitment to debt reduction. As of the end of the third quarter, the partnership’s leverage ratio stood at 0.8x, reflecting its substantial progress in deleveraging the balance sheet.
For the most recent fiscal year (2023), Natural Resource Partners reported revenue of $293.66 million, net income of $278.44 million, operating cash flow of $310.98 million, and free cash flow of $310.97 million. In the most recent quarter (Q3 2024), the partnership generated revenue of $52.22 million, a net loss of $100.03 million, operating cash flow of $54.15 million, and free cash flow of $54.15 million. The year-over-year revenue growth for Q3 2024 was -28.6%, primarily due to lower metallurgical and thermal coal prices as well as lower soda ash prices and demand compared to the prior year quarter.
Over the last 12 months, Natural Resource Partners generated $263 million of free cash flow. However, the partnership does not expect material market improvement in the near term for its key commodities of metallurgical coal, thermal coal, and soda ash. As a result, NRP anticipates a material drop in expected free cash flow compared to the last 12 months due to the persistence of current market softness and lower prices.
Liquidity
In October 2024, Natural Resource Partners further bolstered its financial flexibility by entering into a new $200 million credit facility with a maturity date extended to 2029. This transaction provides the partnership with greater liquidity and a longer runway to execute its strategic priorities.
As of Q3 2024, Natural Resource Partners had a debt-to-equity ratio of 0.38x, cash on hand of $30.90 million, and an available credit line of $45.30 million. The partnership’s current ratio and quick ratio both stood at 2.33x. With $154.68 million drawn on its credit facility, NRP’s total remaining financial obligations, consisting solely of debt, amounted to $181 million as of the end of the third quarter, a decrease of 44% from one year ago.
Segment Analysis
The Mineral Rights segment, which is the primary driver of NRP’s business, generated $185.08 million in revenues and other income during the first nine months of 2024, representing a 15% decrease compared to the prior year period. This decline was primarily due to lower metallurgical and thermal coal sales prices and volumes. Coal royalty revenues, which make up the majority of this segment’s revenues, decreased 23% year-over-year to $124.11 million. The partnership saw lower sales volumes across its key coal producing regions, including declines of 6% in Appalachia, 18% in the Illinois Basin, and 26% in the Northern Powder River Basin. Combined average coal royalty revenue per ton decreased 18% to $5.78 per ton.
Despite the decrease in coal-related revenues, the Mineral Rights segment still generated strong profitability, with net income of $154.02 million and Adjusted EBITDA of $166.80 million for the first nine months of 2024.
The Soda Ash segment, which consists of NRP’s 49% non-controlling equity interest in Sisecam Wyoming, saw revenues and other income decrease 71% year-over-year to $17.20 million during the first nine months of 2024. This significant decline was driven by much lower soda ash sales prices, impacted by increased global production capacity, primarily from China, and weaker demand due to a slowdown in global construction activity and auto manufacturing. As a result, cash distributions received by NRP from its Sisecam Wyoming joint venture decreased by $37.90 million compared to the prior year period.
Despite the challenging market conditions, the Soda Ash segment still contributed $17.09 million in net income and $28.00 million in Adjusted EBITDA to NRP’s overall financial performance through the first nine months of 2024.
Outlook
Despite the near-term market challenges, Natural Resource Partners’ commitment to prudent financial management, debt reduction, and strategic diversification positions the partnership well to navigate the evolving landscape and unlock long-term value for its unitholders. The partnership remains on track with its deleveraging plan and will continue to pay down debt with internally generated cash.
Natural Resource Partners continues to explore opportunities to diversify its revenue streams and position the business for long-term growth. The partnership’s carbon neutral initiatives, which include the leasing of mineral and surface assets for underground carbon sequestration, lithium production, and renewable energy generation, represent potential avenues for future value creation.
As the partnership continues to chart a sustainable path forward, investors would do well to closely monitor Natural Resource Partners’ progress in executing its strategic initiatives and adapting to the challenging market conditions in both the coal and soda ash sectors.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.