International Paper’s Win-Win Deals

International Paper Co. (IP - Analyst Report) has formed a joint venture with Natural Resource Partners L.P. (NRP - Analyst Report). International Paper will receive a payment of $42.5 million from Natural Resource Partners pursuant to the closure of the deal, expected in mid-June. Natural Resource Partners will be the managing and controlling partner with a 51% interest and will get a cumulative preferred distribution from the joint venture, before profit sharing commences.

Houston-based Natural Resource Partners L.P. is a master limited partnership that is principally engaged in the business of owning and managing mineral reserve properties. The company owns coal reserves and coal handling and transportation infrastructure in the three major coal producing regions of the United States – Appalachia, the Illinois Basin and the Powder River Basin. In addition, the partnership owns and manages aggregate reserves in six states.

The new joint venture will own and manage the current leases as well handle further development of more than 7 million mineral acres currently held by International Paper. The total acreage of the joint venture encompasses 31 states and consists of reserves of oil and gas, coal and aggregates as well as the rights to develop coal bed methane, geothermal, CO2 sequestration, water rights, cell towers, other precious metals, industrial minerals and base metals. Approximately three-fourths of the acreage is located in the Gulf Coast Region, with the second largest area being the Pacific Northwest.

As part of the deal, International Paper’s current mineral management team is joining Natural Resource Partners to help manage and develop the mineral holdings of the new venture.

Through this venture, International Paper can earn from its non-core assets as well as gain a share in the future value creation of the mineral rights. International Paper carries out several operations, particularly in emerging markets through joint ventures. Existing joint ventures for the company include the Ilim joint venture in Russia and the Sun joint venture in China.

International Paper Goes “Green,” Reduces Costs

In another development, International Paper has partnered with Maryland-based Fiberight LLC to convert 50,000 tons of residual fiber waste each year to 6 million gallons of ethanol per year. This groundbreaking initiative will produce energy, reducing carbon emissions by more than 80% compared with gasoline and reduce costs for International Paper.

International Paper's Cedar River containerboard mill in Cedar Rapids, Iowa produces 1 million tons per year of recycled paper from old corrugated containers. Presently, the 5% waste emitted from the process is sent to local agricultural companies for fertilizer, animal bedding and other land applications at a cost to the company. Henceforth, the waste will be processed to fuel.

Fiberight LLC is privately held and funded by VentureCross, Accenture Retired Partners Fund as well as a number of private equity investors focused on alternative, clean technology solutions. Fiberight creates new waste disposal options and offers an economic solution to the production of ethanol.

Memphis, TN-based International Paper is a global paper and packaging company with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers, and complemented by xpedx, the company's North American distribution company.

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