Not your father's Natural Resource Partners (NYSE: NRP)
FCF to increase as preferred shares are now paid off and debt to be extinguished by 2026. A coal price rebound should push up FCF further and bring shares higher.
There have been many recent questions about NRP, so I wanted to get out a full update on the company. As I was writing this piece, I realized that our TCT.com founder, David Dyer, did a good 101 piece on NRP in April 2024 after they reported 2023 earnings. That piece is on thecoaltrader.com here. But if you don’t have access to it on the TCT website, don’t worry, I’m going to recap everything here (including some background on NRP at the end of this article).
NRP Introduction
NRP is a Master Limited Partnership (MLP) with approximately 13 million acres of mineral assets spread all over the US (see image below). The company reports revenues in two separate segments, the Mineral Rights Segment, which contains NRP’s coal royalty business, and the Soda Ash Segment. In the Soda Ash Segment, NRP owns a 49% interest in Sisecam Wyoming LLC, a soda ash producer that pays cash distributions to NRP. The Mineral Rights Segment covers fee income from NRP’s 13 million acres, and primarily earns revenues from coal royalties (mostly met coal).
Analysis
David’s thesis from a year ago was that NRP is near the end of a decade-long transformation that will unlock unitholder value, hence my title alluding to the fact that this isn’t the same NRP of years ago. He wrote that with a much cleaner balance sheet, which was the main “transformation” that NRP underwent, the partnership can return the majority of cash flows to unitholders through dividends. Shares should trade higher as the market realizes how much FCF NRP can throw off without its debt burden. Dyer wrote that, even if soda ash and coal markets were weak in 2024, NRP is an excellent play for the long-term. Because of conservative management and the MLP business structure, NRP deserved to trade at a higher EV/EBITDA multiple than “peers” like Arch and Alpha (AMR).