Natural Resource Partners L.P. — Q3 2019 Form 10-Q
Business and period: The partnership owns and leases U.S. mineral properties, principally coal, and holds a 49% non-controlling interest in Ciner Wyoming, a soda ash producer. This unaudited report covers the quarter and nine months ended September 30, 2019, compared with the same 2018 periods. Amounts below are in millions except per-unit data.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue and other income | $63.7 | $58.2 | $212.2 | $188.0 |
| Income from continuing operations | $39.2 | $25.9 | $94.0 | $87.3 |
| Net income attributable to NRP | $39.2 | $28.9 | $94.2 | $90.5 |
| Basic net income per common unit | $2.53 | $1.71 | $5.73 | $5.44 |
| Operating cash flow, continuing operations | Not stated here | Not stated here | $117.9 | $97.8 |
| Adjusted EBITDA (non-GAAP) | $46.0 | $52.0 | $161.3 | $157.3 |
| Distributable cash flow (non-GAAP) | $48.2 | $Not clear in filing text | $125.3 | $103.3 |
Q3 operating income was $49.6 million. Operating income divided by total revenue and other income was approximately 77.8%; this ratio is affected by equity-method earnings and asset-sale gains and is not a conventional operating margin. Nine-month net cash used in financing activities was $219.8 million for continuing operations; cash and restricted cash ended at $112.2 million, including $12.5 million restricted. Capital expenditures are not separately quantified in the provided filing text.
Liquidity, debt and distributions
- Total reported liquidity was $212.2 million: $99.6 million cash, $12.5 million restricted cash, and $100 million undrawn capacity under the Opco revolver. Restricted cash was required to be used for debt repayment, acquisitions or capital expenditures; NRP planned to apply the remaining balance to Opco note repayments.
- Debt, net, was $536.2 million at September 30, down from $672.8 million at year-end 2018. Face-value debt was $544.4 million. No Opco revolver borrowings were outstanding, and the partnership reported compliance with debt covenants.
- NRP issued $300 million of 9.125% senior notes due 2025 and redeemed its 10.5% notes due 2022 using the proceeds and $76 million of cash. The redemption generated a $29.3 million extinguishment loss, including an $18.1 million call premium and write-off of deferred debt costs and discount. The Opco credit facility maturity was extended to April 2023.
- Common-unit distributions included a $0.45 quarterly distribution and a $0.85-per-unit special distribution in May 2019. In October, the board declared a further $0.45 per common unit and $7.5 million for preferred unitholders for Q3.
Changes and management outlook
- Nine-month revenue and other income rose 13%, while Q3 rose 9%. Nine-month growth reflected higher minimum lease and lease-amendment revenues, Hillsboro-related straight-line revenue, and a $5.8 million year-over-year increase in asset-sale gains. Coal royalty revenue fell 9% for the nine months; coal volumes fell 7%.
- Q3 coal royalty revenue declined 19% year over year as coal sales volumes declined 17%. Transportation and processing revenue fell 44%. These pressures were partly offset by minimum lease revenues and a $6.1 million asset-sale gain.
- Ciner Wyoming equity earnings increased to $13.8 million in Q3 from $8.8 million. However, cash distributions received from Ciner Wyoming were lower, contributing to lower Q3 Adjusted EBITDA. Management expects Ciner distributions to fall to approximately $25–$28 million annually for two to three years as Ciner funds a capacity expansion, with expected longer-term benefits after completion.
- Management warned that weaker coal prices and demand, reduced mine activity, and lessee financial distress could adversely affect results. Four lessees had filed for bankruptcy protection in the prior six months. Foresight Energy, NRP’s largest lessee, was in a lender forbearance period; prolonged idling or permanent mine closures could harm NRP. Management expected these challenges to weigh on future results but said recent balance-sheet progress should help it navigate a sustained downturn.
- Anadarko’s contingent-consideration lawsuit remains unresolved. NRP estimates possible loss from zero to approximately $40 million, plus interest, costs and attorneys’ fees. Trial occurred in October 2019; the parties were awaiting the court’s ruling at filing.
Most important facts for investors to verify
- Coal lessee solvency, particularly Foresight’s restructuring outcome, and any resulting mine idling, closures or royalty collection issues.
- Coal market conditions and production trends, including the effect of lower Q3 volumes and prices on future royalty and transportation revenue.
- Actual Ciner Wyoming distributions during the expansion period versus management’s $25–$28 million annual estimate, and the project’s funding and execution.
- Debt repayment schedule, liquidity available after restricted cash is applied, and compliance with covenant thresholds.
- Outcome and potential financial impact of the Anadarko dispute, as well as the durability of minimum-lease and one-time asset-sale revenues.
- Preferred-unit distributions and the common distribution’s coverage by recurring cash flow; non-GAAP DCF and Adjusted EBITDA should be assessed alongside GAAP cash flows and earnings.