Natural Resource Partners L.P. (NRP) announced its first quarter 2011 operating earnings of 42 cents per unit, comfortably surpassing the Zacks Consensus Estimate of 38 cents per unit and the year-ago figure of 24 cents per unit.
Operational Update
Total revenue at Natural Resource Partners at the end of the first quarter was $84.9 million versus $63.5 million in the year-ago period, reflecting a growth of 34%. Reported quarter revenue was well above the Zacks Consensus Estimate of $78 million. The favorable outcome was driven by positive contribution from both coal royalty revenue and revenues other than coal royalties.
In particular, Coal royalty revenues increased 39% year over year to $65.4 million due to increased production as well as higher realizations for coal royalty revenue per ton. Revenues other than coal royalty were up 19% year over year to $19.5 million in the reported quarter.
For the quarter under review, coal production increased 11.0% year over year to 11.9 million tons. Declines in some regions were more than offset by significant increases witnessed in Central Appalachia and the Illinois Basin. Metallurgical coal production accounted for 34% of production and 42% of coal royalty revenue. Average coal royalty revenue per ton shot up 25% to $5.47.
Total expenses rose 28% to $29 million due to increase in depreciation, depletion and amortization as well as increased general and administrative expenses.
Financial Update
At the end of the first quarter 2011, Natural Resource Partners had cash and cash equivalents of $69 million versus $63 million in the year-ago period. Long-term debt in the quarter was $730.9 million versus $657.4 million in first quarter 2010.
Net cash provided by operating activities was $47 million versus $41.9 million in the year-ago period. Distributable cash flow increased 15% to $39 million.
During the quarter, Natural Resource Partners made scheduled principal payments of $15.2 million and interest payments of $17.5 million.
In April this year, Natural Resource Partners completed a private debt placement of four series of senior notes. The four tranches of senior notes will be funded throughout the year with $200 million received immediately and the remaining $100 million to be funded in two $50 million tranches in June and October. The four series of senior notes carry weighted average interest rate of 4.98%.
Natural Resource Partners used the proceeds from the initial $200 million to repay the outstanding balance on the credit facility, with excess funds to be used for future acquisitions. Following the transaction, the company has the full $300 million available on its credit facility in addition to the additional $100 million that will be received on the two remaining tranches.
Acquisitions
During the first quarter of 2011, Natural Resource Partners completed three acquisitions totaling $90.7 million, of which $84.9 million was funded during the quarter. The company completed the acquisition, announced in 2009, related to the Deer Run property in Illinois, for $70 million.
It expects to complete additional acquisitions on the property during the next twelve months for approximately $80 million. Additionally, it closed two aggregate reserve acquisitions in Tennessee and Kentucky. These acquisitions were funded through the partnership’s credit facility.
A Quick Look into 2011
The coal markets continue to improve as the country emerges from the recent economic recession. Natural Resource Partners expects coal exports, mostly metallurgical, to hit record levels in 2011, benefiting from the global nature of the steel business and the growing demand for both metallurgical coal and coke by developing countries.
Additionally, the supply disruptions due to weather issues and other factors in some of the competing supply basins around the world add benefit to the market. The thermal market in the United States continues to improve but at a slower pace than the metallurgical market.
Our Take
Going forward, we expect the partnership to benefit from the improvement in coal market fundamentals, as well as recent acquisitions, its strong liquidity position and solid quarterly results. Further, we believe the partnership will continue to grow its distributions in the future, driven by increased cash flows from its coal royalties business and the cancellation of the incentive distribution rights.
However, continued depletion of reserves and the company’s dependence on the capital markets to finance a portion of capital growth projects are points of concern. Natural Resource Partners presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
One of the competitors of Natural Resource Partners, CONSOL Energy Inc. (CNX) posted first quarter 2011 adjusted earnings of 84 cents per share, beating the Zacks Consensus Estimate of 78 cents and the year-ago figure of 54 cents per share.
Houston, Texas-based Natural Resource Partners L.P. is a master limited partnership principally engaged in the business of owning and managing mineral reserve properties. The company owns coal reserves and coal handling and transportation infrastructure in the three major coal producing regions of the United States – Appalachian, the Illinois Basin, and the Powder River Basin.
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