Executive Summary / Key Takeaways

• Natural Resource Partners L.P. (NRP) has successfully executed a decade-long deleveraging strategy, retiring over $1.3 billion in financial obligations and significantly strengthening its balance sheet, with only $69.377 million in net debt remaining as of September 30, 2025.
• Despite significant headwinds across its key commodities—metallurgical coal, thermal coal, and soda ash—NRP continues to generate robust free cash flow, reporting $42 million in Q3 2025 and $190 million over the last twelve months.
• The company's royalty-based business model and its 49% interest in Sisecam Wyoming, a low-cost soda ash producer, provide a resilient cash flow stream by insulating NRP from direct operational costs and risks.
• Management anticipates achieving a "fortress balance sheet" by mid-2026, which is expected to enable substantial increases in unitholder distributions starting in August 2026.
• While carbon-neutral initiatives (CNI) currently face market and regulatory hurdles, NRP's extensive land holdings, including 3.5 million acres of CO2 sequestration pore space and lithium leasing opportunities, represent long-term "out-of-the-money call options" with significant future potential.

A Foundation of Royalties and Strategic Deleveraging

Natural Resource Partners L.P., established in 2002, operates a distinctive business model centered on owning, managing, and leasing a diversified portfolio of mineral properties across the United States. This includes extensive interests in coal and other natural resources, complemented by a strategic 49% non-controlling equity interest in Sisecam Wyoming LLC, a trona ore mining and soda ash production business. NRP's operations are segmented into Mineral Rights and Soda Ash, with its core strength lying in its asset-light, royalty-based approach where lessees bear the operational expenses, capital costs, and liabilities of production activities.

A pivotal strategic journey for NRP began around 2014-2015 with the initiation of a comprehensive deleveraging strategy. This long-term commitment aimed to build a robust cost and capital structure capable of generating substantial cash flow and competitive profits throughout commodity price cycles. Over the past decade, NRP has retired over $1.3 billion in financial obligations, a testament to its disciplined capital allocation. Key milestones include the redemption of all remaining preferred units and the settlement of all outstanding warrants in 2024, significantly streamlining its capital structure. Concurrently, the Opco Credit Facility was expanded to $200 million and its maturity extended to October 2029, providing enhanced liquidity and financial flexibility. This historical context is crucial, as it underpins NRP's current financial strength and its ability to weather challenging market conditions.

Competitive Landscape and Differentiated Assets

NRP operates within a competitive landscape that includes major coal producers like Arch Coal, Inc. (ARCH), Peabody Energy Corporation (BTU), and Alliance Resource Partners, L.P. (ARLP), as well as soda ash specialists such as Ciner Resources LP (CINR). NRP's royalty-based model offers a qualitative advantage in operational simplicity and lower direct exposure to extraction risks, potentially leading to more stable cash flow generation compared to direct mining companies like Arch Coal and Peabody. While these larger producers benefit from greater control over supply chains and production scale, NRP's asset-light strategy generally results in lower operating costs and reduced capital intensity. This positions NRP favorably in terms of risk mitigation and financial resilience during volatile market cycles.

A key differentiator for NRP lies in its diversified asset base. Its 49% equity interest in Sisecam Wyoming is particularly notable, as Sisecam Wyoming is recognized as one of the world's lowest-cost producers of soda ash. This competitive edge in the soda ash segment provides a resilient income stream, even when global soda ash prices are depressed. NRP's extensive mineral rights portfolio also includes approximately 3.5 million acres of underground pore space for carbon dioxide sequestration and acreage in the Smackover formation for lithium production. These represent strategic "out-of-the-money call options" on future technologies, offering potential long-term value without significant current capital outlay from NRP. While direct quantitative comparisons with all competitors' specific technological advancements are not publicly detailed, NRP's strategic positioning through its low-cost soda ash partner and its future-oriented CNI assets provides a distinct competitive moat.

Financial Performance Amidst Headwinds

Despite a challenging commodity price environment, NRP has demonstrated robust financial performance, largely due to its resilient business model and strategic deleveraging. For the nine months ended September 30, 2025, NRP reported net income of $105.369 million, a decrease of $35.50 million compared to the prior year period. This decline was primarily driven by a $29.30 million, or 16%, decrease in revenues and other income from the Mineral Rights segment, and a $12.50 million, or 72%, decrease in revenues and other income from the Soda Ash segment. These reductions were largely attributable to lower metallurgical coal sales prices and volumes, and depressed soda ash sales prices.

However, the company's focus on debt reduction provided a partial offset, with net interest expense decreasing by $5.20 million during the nine months ended September 30, 2025, due to reduced borrowings on the Opco Credit Facility. NRP generated $121.098 million in operating cash flow and $123.240 million in free cash flow for the nine months ended September 30, 2025. Over the last twelve months, NRP generated $190 million of free cash flow, underscoring the cash-generative nature of its royalty model even in difficult markets. The elimination of preferred unit distributions, while not directly impacting free cash flow, saves NRP $30 million in annual cash outflow, further enhancing its financial flexibility.

Liquidity and the Path to a Fortress Balance Sheet

NRP's commitment to financial strength is evident in its robust liquidity and significantly reduced debt profile. As of September 30, 2025, the company boasted total liquidity of $190.10 million, comprising $31 million in cash and cash equivalents and $159.10 million in available borrowing capacity under its Opco Credit Facility. The leverage ratio stood at a conservative 0.40x, well below the covenant maximum of 3.0x, and the interest coverage ratio was a strong 16.6x against a minimum of 3.50 to 1.

The company has made substantial progress on its deleveraging goals, retiring nearly $130 million of debt over the past 12 months, leaving only $70 million of debt outstanding as of the end of Q3 2025. Total net debt decreased to $69.377 million as of September 30, 2025, from $142.068 million at December 31, 2024. Management's stated goal is to achieve a "fortress balance sheet," defined as having no permanent debt and maintaining $30 million of cash on the balance sheet. This strategic objective is anticipated to be met by mid-2026, positioning NRP for a new phase of capital allocation.

Outlook, Guidance, and Strategic Priorities

NRP's outlook is shaped by management's cautious assessment of commodity markets. Metallurgical and thermal coal prices are expected to remain subdued for the foreseeable future due to soft global steel demand, low natural gas prices, and high coal inventories. While there is optimism around increased electricity demand from data centers, management has not yet seen material support for prices or demand, maintaining the thesis that North American thermal coal faces a long-term secular decline.

The soda ash market faces a "generational bear market," with international prices below production costs for most producers due to oversupply and weak demand from glass, construction, and automotive sectors. Distributions from Sisecam Wyoming are not expected to resume for the foreseeable future, with cash retained for investments in safety and system integrity, and a market rebalancing is projected to take several years. Carbon-neutral initiatives, including CO2 sequestration, continue to face significant hurdles from high costs, insufficient revenue streams, and regulatory uncertainty, leading to the termination of some leases.

Despite these headwinds, NRP's robust free cash flow generation is expected to continue. Management anticipates being in a position to substantially increase unitholder distributions starting in August 2026, once the deleveraging strategy is largely complete. The capital allocation priorities post-deleveraging are clear: first, unitholder distributions; second, unit repurchases at material discounts to intrinsic value; and third, opportunistic acquisitions.

Risks and Challenges

NRP's investment thesis is subject to several key risks. The most prominent is commodity price volatility, as revenues and operating results are substantially dependent on prevailing prices for coal and soda ash. Depressed prices could trigger asset impairments or covenant violations. The company's reliance on its lessees for effective coal marketing also poses a risk; if lessees struggle to secure long-term contracts, NRP's royalty revenues could become more volatile. The oversupplied soda ash market and the prolonged rebalancing period represent a significant challenge to distributions from Sisecam Wyoming. Furthermore, the nascent carbon-neutral industry faces substantial political, regulatory, and market uncertainties, delaying the realization of cash flow from these assets. Interest rate risk also exists due to variable-rate borrowings under the Opco Credit Facility, with a 1% increase potentially raising annual interest expense by approximately $0.40 million.

Conclusion

Natural Resource Partners L.P. stands at a pivotal juncture, having meticulously executed a decade-long deleveraging strategy that has transformed its financial profile. The company's royalty-based model, coupled with its strategic interest in a low-cost soda ash producer, has proven resilient in generating substantial free cash flow, even amidst a challenging commodity market characterized by weak coal and soda ash prices. This financial fortitude, underscored by a leverage ratio of 0.40x and ample liquidity, positions NRP to achieve its "fortress balance sheet" goal by mid-2026.

The impending completion of its deleveraging journey sets the stage for a significant shift in capital allocation, with management signaling a strong intent to substantially increase unitholder distributions starting in August 2026. While market headwinds and the nascent stage of carbon-neutral initiatives present ongoing risks, NRP's asset diversification, low-cost competitive positioning through Sisecam Wyoming, and disciplined financial management provide a compelling narrative for discerning investors. The company's strategic focus on maximizing intrinsic value per unit, through a combination of distributions, opportunistic share repurchases, and selective acquisitions, suggests a bright outlook for unitholders as NRP transitions into its next phase of value creation.