Natural Resource Partners L.P. — Q1 2020 Form 10-Q
Period: Three months ended March 31, 2020; comparisons are with Q1 2019. NRP owns and leases U.S. mineral properties and holds a 49% non-controlling interest in Ciner Wyoming, a soda ash business. Amounts below are in millions except per-unit data.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue and other income | $40.2 | $67.0 | Down 40% |
| Operating income | $29.1 | $49.9 | Down 42% |
| Net income | $18.8 | $35.7 | Down 47% |
| Net income per common unit, basic / diluted | $0.90 / $0.52 | $2.26 / $1.75 | Lower |
| Adjusted EBITDA (non-GAAP) | $31.9 | $52.4 | Down $20.5 |
| Cash from operating activities | $31.9 | $23.0 | Up $8.9 |
| Distributable cash flow (non-GAAP) | $30.4 | $23.1 | Up $7.2 |
| Free cash flow (non-GAAP) | $30.4 | $23.3 | Up $7.2 |
Operating cash flow and DCF/FCF benefited mainly from the timing of interest payments after the 2019 parent-debt refinancing; underlying coal and soda ash performance weakened. NRP paid $16.7 million of debt principal and $13.1 million of common/GP and preferred distributions in the quarter. Cash increased to $100.5 million. Total debt, net, was $499.9 million, down from $516.2 million at year-end 2019; $45.8 million was classified as current. Liquidity was $200.5 million, including $100.0 million of undrawn revolver capacity. NRP reported compliance with debt covenants and no revolver borrowings.
Material changes and operating drivers
- Coal Royalty and Other revenue fell 39% to $33.9 million. Coal sales from NRP properties declined 25% to 4.5 million tons, and average royalty revenue per ton fell 18% to $4.44. Weak metallurgical coal markets, lower steel demand, and challenged thermal coal markets reduced volumes and prices.
- Soda Ash segment revenue fell 46% to $6.3 million, primarily from lower international soda ash demand, prices, and volumes. Ciner Wyoming’s net sales fell to $114.4 million from $130.4 million, and net income declined to $15.3 million from $26.3 million.
- Operating expenses decreased 35% to $11.1 million, partly offsetting lower revenue. Net interest expense decreased to $10.3 million from $14.2 million, reflecting lower debt balances.
- Q1 continuing-operations operating cash flow was $30.2 million; total operating cash flow, including discontinued operations, was $31.9 million. Cash paid for interest was $3.0 million versus $23.4 million, largely reflecting payment timing.
Outlook, risks, and unusual items
- Management said COVID-19 had not materially affected Q1 results but was beginning to reduce demand for steel, electricity, and soda ash. It expected continued negative effects in coming months; severity and duration were uncertain. Management cited approximately $200 million of liquidity and the 2025 maturity of $300 million of parent notes as support for navigating the downturn.
- NRP’s largest lessee, Foresight Energy, filed for bankruptcy in March 2020 and continued operating. Its filings described plans to restructure and continue operations at Sugar Camp, Williamson, and Hillsboro; Macoupin was idled. NRP noted that Foresight’s profitability and emergence from bankruptcy remain exposed to weak thermal coal demand and the pandemic.
- In April 2020, after quarter-end, NRP announced it would suspend the common-unit distribution and pay half of the first-quarter preferred distribution in kind. This is a material change to distributions and liquidity policy.
- Ciner Wyoming planned a significant capacity expansion, expected to be funded partly by retaining cash otherwise distributable to partners. Before COVID-19, NRP expected annual distributions of approximately $25–$28 million during the project; future distributions are now uncertain.
- NRP adopted the credit-loss standard on January 1, 2020, recording a $3.9 million reduction to opening partners’ capital. At March 31, the reported credit-loss allowance was $3.5 million. NRP recorded no mineral-rights impairment in Q1, but warned that a worse-than-estimated pandemic impact could lead to future impairment.
- Foresight Energy and Contura Energy represented 22% and 21% of Q1 revenue, respectively. A lawsuit brought by Anadarko concluded in Q1 with no liability to NRP. Management said ordinary-course legal matters were not expected to have a material effect.
Important facts for investors to verify
- How the pandemic and coal-market weakness affect lessee production, royalty receipts, and mineral-property impairment assumptions.
- Foresight Energy’s bankruptcy outcome, NRP’s contract amendments or exposure, and collection of amounts owed by major customers.
- The sustainability of liquidity and debt-covenant compliance, including scheduled debt principal payments and revolver availability.
- The amount and timing of future Ciner Wyoming distributions during its expansion and under weaker soda ash demand.
- The terms and continuing effect of the common-distribution suspension and preferred-unit payment-in-kind decision.