Natural Resource Partners LP — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative figures are for Q1 2023. NRP owns and leases U.S. mineral interests and holds a 49% non-controlling interest in Sisecam Wyoming, a trona-mining and soda-ash business. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenues and other income | $76.4 million | $99.2 million |
| Income from operations | $59.7 million | $82.1 million |
| Net income | $56.2 million | $79.3 million |
| Net income attributable to common unitholders | $53.0 million | $55.3 million |
| Basic / diluted net income per common unit | $4.13 / $3.83 | $4.40 / $3.44 |
| Operating cash flow | $71.5 million | $72.9 million |
| Distributable cash flow (non-GAAP) | $72.3 million | $73.6 million |
| Free cash flow (non-GAAP) | $72.1 million | $73.5 million |
Operating expenses were $16.7 million, down 2%. Interest expense, net, increased to $3.5 million from $2.9 million. Calculated against total revenues and other income, operating margin was approximately 78% versus 83%, and net margin approximately 74% versus 80%.
- Balance sheet and liquidity: Cash was $11.0 million; total assets were $778.2 million. NRP reported $64.8 million of liquidity: cash plus $53.8 million of available credit capacity.
- Debt: Debt was $189.2 million at face value ($188.8 million net), up from $155.5 million face value at year-end. Leverage ratio was 0.6x. NRP said it complied with debt covenants; approximately $14 million of senior-note principal repayments were due during the remainder of 2024.
- Margins and operating segments: Mineral Rights segment revenue and other income fell 11% to $71.0 million. Soda Ash segment equity earnings were $5.5 million, versus $19.3 million. Adjusted EBITDA (non-GAAP) was $73.1 million, down from $77.7 million.
Material changes versus Q1 2023
- Total revenue and other income declined 23%. Mineral Rights results were pressured principally by lower metallurgical coal prices: coal royalty revenue fell 19%, while average coal royalty revenue per ton declined 26%; total coal volumes rose 9%.
- Soda Ash equity earnings declined as Sisecam Wyoming faced lower prices and sales volumes amid increased supply from China. Sisecam Wyoming’s reported net sales were $130.4 million versus $207.1 million, and net income was $13.6 million versus $41.6 million.
- Common-unit net income fell modestly despite the decline in total net income, partly reflecting lower preferred-unit distributions and the absence of the prior-year preferred-unit redemption charge. Diluted per-unit income increased year over year, reflecting a lower diluted unit count.
- Operating cash flow and free cash flow were slightly lower. Financing cash outflow included $55.7 million in cash warrant settlements; debt borrowings and repayments also increased during the quarter.
Outlook, distributions, risks and unusual items
- Management gave no specific numeric earnings or cash-flow guidance. It expects continued coal-price volatility: softer steel demand may weigh on metallurgical coal, while mild weather, inventories, low natural-gas prices and coal-plant shutdowns may weigh on thermal coal. Management cited supply constraints, labor shortages and inflation as potential price support.
- Management expects international soda-ash prices to remain lower through the rest of 2024 and into 2025 as markets absorb additional supply and contend with slower global growth. Cash received from Sisecam Wyoming can differ from equity earnings because distributions relate to different periods.
- NRP is pursuing potential carbon sequestration, renewable energy and lithium opportunities, but stated timing and potential cash flows are uncertain.
- In March, NRP paid a $0.75-per-unit regular distribution and a $2.44-per-unit special distribution intended to help cover unitholder tax liabilities. In May, the board declared a $0.75-per-unit distribution for Q1 2024 and a $2.15 million preferred-unit distribution. Future distributions remain subject to board decisions and business, cash-flow and debt considerations.
- Warrant holders exercised 1,219,665 warrants in Q1; NRP settled them for $55.7 million cash and 198,767 common units. The remaining 320,335 warrants were settled in April for $10.0 million cash and 89,059 common units; no warrants remained outstanding after that settlement.
- Key risks include commodity-price exposure, possible effects of lower coal prices on revenue, asset values and debt covenants, and variable-rate debt. A 1% increase in rates would increase annual interest expense by approximately $1.5 million at the reported borrowing level. Alpha Metallurgical Resources and Foresight accounted for 27% and 17% of Q1 revenue, respectively.
- NRP reported no material change in previously disclosed risk factors, no material control changes, and no legal proceedings expected by management to materially affect the business. It reported no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether coal prices, particularly metallurgical coal prices, stabilize or continue to pressure royalty revenue and lessee activity.
- Sisecam Wyoming’s sales, profitability and distributions to NRP as soda-ash prices and supply conditions evolve.
- Debt maturities, credit-facility availability, covenant compliance and the effect of variable interest rates.
- The sustainability of common-unit distributions, including the distinction between regular and special, tax-related distributions.
- Customer concentration and the timing and economics of any proposed carbon-management or renewable-energy opportunities.