Natural Resource Partners L.P. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. NRP owns and leases U.S. mineral properties, primarily coal, and holds a 49% non-controlling interest in Ciner Wyoming, a soda ash producer. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue and other income | $56.8 | $29.9 | $132.5 | $101.2 |
| Operating income (loss) | $39.2 | $17.5 | $82.6 | $(68.6) |
| Net income (loss) | $29.5 | $7.2 | $53.3 | $(99.5) |
| Net income (loss) attributable to common units | $21.1 | $(0.3) | $29.1 | $(119.7) |
| Basic earnings (loss) per common unit | $1.71 | $(0.02) | $2.36 | $(9.76) |
| Operating cash flow | Not stated separately for Q3 | Not stated separately for Q3 | $66.6 | $76.1 |
- Q3 revenue rose 90%; nine-month revenue increased 31%. Coal royalty and other revenue drove the improvement, supported by higher coal volumes and prices. Q3 coal royalty revenue grew 206%, while Ciner Wyoming equity earnings were $6.7 million versus $2.0 million.
- Derived operating margin was approximately 69% in Q3 2021 versus 58% in Q3 2020, calculated as operating income divided by revenue and other income. Nine-month operating income turned positive; the prior-year period included $133.2 million of impairments.
- Adjusted EBITDA, a non-GAAP measure, was $37.7 million for Q3 versus $18.5 million, and $94.5 million for nine months versus $79.8 million. Nine-month free cash flow (non-GAAP) was $67.3 million versus $74.9 million; distributable cash flow was $68.5 million versus $76.3 million.
- Nine-month operating cash flow declined $9.5 million, mainly from lower Ciner Wyoming distributions and prior-year one-time lease amendment and past-due payments, partly offset by stronger coal cash flow and lower interest paid.
Financial position and distributions
- At September 30, cash was $119.0 million; total debt, net, was $453.5 million, down from $471.5 million at December 31, 2020. Current debt was $39.1 million. NRP reported $219.0 million of liquidity, including $100 million available on its undrawn revolving facility.
- NRP reported a consolidated leverage ratio of 3.8x, above the 3.75x threshold in the parent notes’ preferred-distribution restriction. It paid half of preferred distributions in kind during the first nine months, issuing $11.6 million of preferred units. The filing says NRP remained in compliance with debt covenants.
- Common distributions were $0.45 per unit for each of the first three quarters of 2021. In November, the board declared a $0.45-per-unit Q3 distribution and a preferred distribution payable half in cash and half in additional preferred units.
- Accrued preferred distributions reduced income attributable to common unitholders by $8.0 million in Q3 and $23.5 million for the first nine months.
Outlook, risks and notable items
- Management expected leverage to fall below 3.75x by year-end, citing anticipated strong coal and soda ash pricing and a forest-carbon transaction. If leverage remains above the threshold and paid-in-kind preferred units cannot be redeemed, common-unit distributions may have to be temporarily suspended. Distribution and redemption decisions remain subject to the board’s quarterly review.
- After quarter-end, NRP issued and sold 1.1 million forest carbon offset credits for $13.8 million, representing carbon sequestered on approximately 39,000 acres. Management described this as an initial alternative-revenue opportunity; further timing and cash flows are uncertain.
- Coal markets had rebounded, particularly metallurgical coal. Management noted that most thermal-coal cash flows were fixed through 2021 under Foresight agreements; thermal coal faces longer-term demand, natural-gas competition and renewable-energy-transition risks.
- Ciner Wyoming’s business was recovering, but management cautioned that soda ash markets remained volatile amid COVID-19 uncertainty. Ciner Wyoming deferred or reprioritized significant expansion and infrastructure spending to preserve flexibility; NRP expected a $7.4 million distribution from it in Q4 2021.
- NRP recorded $4.1 million of impairments for the first nine months of 2021, primarily after a coal lease termination. The filing warns that a worse-than-estimated COVID-19 impact could lead to future impairments. Two customers accounted for 23% each of nine-month revenue; Foresight accounted for 19%.
- Ordinary-course legal proceedings were not expected by management to materially affect the business. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether year-end leverage fell below 3.75x and whether NRP redeemed paid-in-kind preferred units or changed common distributions.
- Cash conversion and debt repayment capacity, including the effect of lower Ciner Wyoming distributions and upcoming principal payments.
- Coal volumes, royalty rates and lessee concentration, along with the duration and terms of Foresight’s fixed-payment arrangements.
- Whether the carbon-credit transaction produces repeatable cash flows, and the timing and cost implications of Ciner Wyoming’s deferred capital projects.
- Potential additional mineral-property impairments and changes in customer credit quality or receivable allowances.