Natural Resource Partners L.P. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance sheet compared with December 31, 2021. NRP owns and leases U.S. mineral interests and holds a 49% non-controlling equity interest in Sisecam Wyoming, a soda ash business. Unless indicated otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue and other income | $89.7 | $37.2 |
| Income from operations | $73.3 | $18.4 |
| Net income | $63.9 | $8.4 |
| Net income attributable to common unitholders and general partner | $56.4 | $0.7 |
| Basic / diluted net income per common unit | $4.45 / $3.11 | $0.05 / $0.05 |
| Cash provided by operating activities | $52.3 | $23.2 |
| Adjusted EBITDA (non-GAAP) | $75.6 | $29.4 |
| Free cash flow (non-GAAP) | $52.3 | $23.7 |
Revenue increased 141%. Mineral Rights revenue rose 113% to $74.9 million, principally from higher coal prices and Appalachian production; Soda Ash equity earnings were $14.8 million versus $2.0 million. Operating expenses fell 13% to $16.4 million, mainly because Q1 2021 included a $4.0 million coal-property impairment. Operating margin was approximately 81.7% versus 49.4%, calculated as operating income divided by revenue and other income.
NRP’s share of Sisecam Wyoming equity earnings was $14.8 million; cash distributions received from the venture were $13.2 million. Sisecam Wyoming reported net sales of $163.4 million and net income of $32.8 million for the quarter.
Liquidity, debt and capital
- March 31 cash was $135.6 million; the undrawn Opco credit facility added $100.0 million of capacity, for reported total liquidity of $235.6 million.
- Total debt, net of issuance costs, was $417.2 million, down from $433.5 million at year-end. Debt at face value was $421.8 million. Reported consolidated leverage was 2.0x; management said debt covenants were met.
- Operating cash flow of $52.3 million was largely offset by $52.3 million of financing outflows, including $16.7 million of debt repayments, $5.7 million of common-unit distributions, $7.5 million of preferred distributions, and $19.6 million to redeem preferred units paid in kind. Cash ended the quarter nearly unchanged at $135.6 million.
- NRP reported approximately $23 million of Opco senior-note principal repayments due during the remainder of 2022. The $300 million 9.125% senior notes mature in June 2025; the $100 million credit facility was scheduled to mature in April 2023.
- Current liabilities were $68.2 million and total liabilities were $490.3 million. Net receivables and long-term contract receivable totaled $65.8 million after a $5.5 million expected-credit-loss allowance.
Material changes, outlook and risks
- Coal royalty revenue rose to $55.4 million from $15.4 million. Coal sales volumes increased 4% to 6.85 million tons, while average coal royalty revenue per ton rose 152% to $8.12. Appalachian royalty revenue increased substantially; Illinois Basin revenue declined 40%.
- Management described metallurgical and thermal coal markets as tight, citing strong demand, supply constraints, labor and supply-chain issues, and—in thermal coal—higher natural-gas prices and impacts from the war in Ukraine. It expected near-term thermal coal pricing to remain positive and metallurgical coal supply-demand conditions to remain tight. These are expectations, not guaranteed results.
- Management cited strong soda ash demand and constrained supply, with higher prices helping Sisecam Wyoming pass on input-cost inflation. Future common and preferred distributions remain subject to quarterly Board decisions and business, cash-flow, debt-service, market and reserve considerations.
- In Q1, NRP granted Denbury development rights over 75,000 acres of subsurface pore space in southwest Alabama for a potential carbon-sequestration project. NRP said the site could store over 300 million metric tons of CO₂; development, timing and future cash flows are uncertain. The filing also describes potential renewable-energy and other transition-related opportunities, without quantified expected returns.
- Principal risks and uncertainties include coal and soda ash prices and demand, lessee production, customer credit and concentration, regulation, economic conditions, and uncertainty around COVID-19 impacts. Foresight represented 13% and Alpha Metallurgical Resources 31% of Q1 revenue. Management said ordinary-course legal proceedings were not expected to materially affect the Partnership; no material changes to previously disclosed risk factors were reported.
- Subsequent to quarter-end, the Board declared a $0.75-per-common-unit distribution for Q1 2022, versus $0.45 paid for the prior quarter, plus $7.5 million in preferred-unit cash distributions.
Most important facts for investors to verify
- Whether higher coal prices and production, especially in Appalachia, persist and translate into royalty cash flow.
- Sisecam Wyoming’s operating results and the timing and amount of cash distributions to NRP.
- Debt repayment capacity, upcoming Opco maturities and credit-facility availability and renewal.
- The sustainability of the increased common distribution alongside preferred obligations and capital needs.
- Customer concentration, receivable collectability and the assumptions behind the expected-credit-loss allowance.
- Whether the Denbury carbon-sequestration opportunity advances; the filing does not provide a clear value or timing for potential proceeds.