Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Natural Resource Partners LP Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Tiffany Sammis, Manager of Investor Relations. Please go ahead.

Tiffany Sammis: Thank you. Good morning, and welcome to the Natural Resource Partners Third Quarter 2023 Conference Call. Today’s call is being webcast, and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer; Chris Zolas, Chief Financial Officer; and Kevin Craig, Executive Vice President. Some of our comments today may include forward-looking statements reflecting NRP’s views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP’s Form 10-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures are included in our third quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. Now I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.

A mining truck hoding a payload of mineral ore, a visual representation of the companies resources.

Craig Nunez: Thank you, Tiffany, and good morning, everyone. NRP generated $80 million of free cash flow in the third quarter and $304 million of free cash flow over the last 12 months. We continue to utilize this cash to aggressively retire debt, preferred equity and warrants. During the third quarter, we permanently retired $50 million of our 12.5% preferred equity, increasing our total preferred equity retirement for the year to $178 million and lowering our outstanding balance of preferred equity to $72 million. We also repurchased 1.46 million warrants, which included 812,500 warrants in the third quarter and 650,000 warrants in October for a total of $52 million to $56 million in cash. After these transactions, we only have 1.54 million warrants outstanding with a strike price of $34.

As of today, our total obligations, which includes debt, preferred equity and warrants, are around $325 million. We continue to believe that aggressive retirement of debt, preferred equity and settlement of warrants, while maintaining common unit distributions is the right strategy to maximize long-term common unitholder value. Our Mineral Rights business generated $62 million of free cash flow during the third quarter. Metallurgical coal prices improved during the quarter but remained below the record levels seen in 2022. The global supply-demand balance for met coal remains well supported, and we believe it will remain so for the foreseeable future due to solid long-term demand trends and somewhat muted investment in new met supply. Thermal coal prices stabilized in the third quarter after mild winter weather and decreased utility burn drove prices down in the first half of the year.

While we believe domestic thermal coal burn will continue to face near-term headwinds and continue its long-term secular decline, we have seen an increase year-over-year in thermal coal export demand, which has provided support for pricing. We continue to believe underinvestment in new sources of thermal coal production, coupled with continued international thermal coal demand, will likely provide price support at levels that are relatively strong when compared to historical norms. Turning to Soda Ash, we have received $66 million of cash distributions from Sisecam Wyoming so far in 2023, which is the highest level of regular distributions we’ve ever received for the first 3 quarters of a year. We believe the distribution policy at Sisecam Wyoming has shifted since our 51% managing partner, Sisecam Resources, completed its conversion from a publicly traded master limit partnership to a private company earlier this year.

Previously, distributions were paid relatively evenly throughout the year, smoothing quarter-over-quarter variances consistent with the public MLP model. Going forward, we believe quarterly distributions will be more closely tied to actual cash generated by Sisecam Wyoming. This will introduce greater volatility to cash distributions, but it will bring future distributions more in line with the actual operating performance of the business. We saw significantly lower soda ash export prices in the third quarter of 2023 compared to the first half of the year, primarily due to new supply from China. We believe this unfavorable price trend will persist in the coming years until the market absorbs the additional supply. However, our long-term view has not changed.

We believe the long-term fundamentals of the soda ash industry remain favorable, driven in part by the ongoing increase in renewable energy, the electrification of the global auto fleet and urbanization. We continue to evaluate opportunities to expand our carbon-neutral portfolio with the goal of monetizing our mineral and surface assets for permanent underground CO2 sequestration, forest sequestration and the generation of electricity using geothermal, wind and solar energy. While the carbon neutral economy is in an early stage of development and requires significant investment and further development to become viable, we believe the potential upside for our carbon-neutral initiatives could be significant, all while requiring no capital investment by NRP.

Both our Mineral Rights and Soda Ash businesses have witnessed significant price volatility over the last year. We expect this volatility to continue for the foreseeable future. However, we are confident that the strides taken to delever and derisk our business in recent years position us well to generate robust free cash flow in the months and years ahead. And with that, I’ll turn the call over to Chris to cover the financials.

Chris Zolas: Thank you, Craig, and good morning, everyone. During the third quarter, we generated $79 million of operating cash flow and $64 million of net income. Our Mineral Rights segment generated net income and operating cash flow of $61 million and free cash flow of $62 million this quarter. When compared to the prior year third quarter, segment net income and free cash flow decreased $11 million and $15 million, respectively, primarily due to carbon-neutral initiative transactions entered into during the prior year third quarter and higher oil and gas royalty revenues driven by higher natural gas prices and sales volumes last year. Regarding our met thermal coal royalty mix, metallurgical coal made up approximately 60% of our coal royalty revenues and 45% of our coal royalty sales volumes for the third quarter of 2023.

Moving to our Soda Ash business segment. Net income in the third quarter of 2023 was $2 million lower as compared to the prior year quarter, primarily due to lower international sales prices and an increased sales mix into the international market in the third quarter of 2023 as compared to the prior year period. Free cash flow from our Soda Ash business segment in the third quarter of 2023 increased $13 million as compared to the prior year period. This increase was due to a higher cash distribution received from Sisecam Wyoming. Shifting to our Corporate and Financing segment. Costs for the third quarter of 2023 improved $3 million, primarily due to a loss on early extinguishment of debt recognized in 2022. Our Corporate and Financing segment free cash flow decreased $1 million as compared to the prior year period because of higher cash paid for interest on credit facility borrowings in 2023 that were used to redeem preferred units and to settle warrants.

As Craig mentioned, our strong third quarter operating performance enabled us to make great strides in permanently retiring outstanding preferred units and warrants. In the third quarter, we redeemed $50 million of our preferred units at par with cash, bringing our total preferred unit redemptions in 2023 to $178 million and lowering the outstanding amount of preferred units to $72 million. We will save over $20 million annually in preferred unit cash distributions as a result of these redemptions. In addition, we repurchased 1.46 million of warrants for a total of $56 million in cash, reducing our outstanding warrants to 1.54 million. Finally, regarding quarterly distributions, in August of this year, we paid a second quarter distribution of $0.75 per common unit and a $3.65 million cash distribution to our preferred unitholders.

And this morning, we announced a third quarter distribution of $0.75 per common unit and a $2.15 million cash distribution to our preferred unitholders. And with that, I’ll turn the call back over to our operator for questions.

Operator:

Craig Nunez: Thank you, operator, and thank you, everyone, for joining our call and for your continued support of NRP, and we look forward to talking to you next quarter.

Operator: Thank you. Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect your lines.

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NATURAL RESOURCE PARTNERS LP

Q3 2023

Earnings Transcript

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