Natural Resource Partners Emerges Stronger

Natural Resource Partners L.P. (NRP - Analyst Report), a Texas-based Energy Company that engages in the business of owning and managing mineral reserve properties, posted third-quarter 2011 operating earnings of 57 cents per unit, substantially above the Zacks Consensus Estimate of 41 cents. The partnership’s third quarter earnings were also ahead of the year-ago earnings of 51 cents.

Revenue

Natural Resource Partners’ third quarter total revenue recorded a 29% improvement reaching $103.8 million mainly driven by increases in coal production, average coal royalty revenue per ton and additional throughput on infrastructure assets. Reported quarter revenue was higher than the Zacks Consensus Estimate of $85 million.

Quarterly Highlights

Coal production in third quarter 2011 increased 10% over the year-ago quarter to 13.6 million tons, highest since 2008. Majority of the production increase came from the sale of Illinois Basin coal that was deferred from the second quarter 2011 due to river flooding. Additionally, revenues benefited from a 15% increase in average coal royalty revenue per ton, which boosted coal royalty revenues to $76.4 million, a 27% increase from last year.

Revenues other than coal royalty increased 33% year over year to $27.3 million due mainly to increased oil and gas revenues from BRP, increased throughput volumes on both the coal processing and transportation assets, additional volumes on overriding royalties and a gain on sale of assets of $1.2 million included in other income.

Total operating costs and expenses during the quarter totaled $120.3 million. Excluding an impairment charge of $90.9 million, total operating costs and expenses were $29.4 million, recording a marginal decline from $30.4 million in the prior-year quarter.

Financials

Cash provided by operating activities during the quarter was $79.6 million versus $62.1 million in the prior-year quarter.

In the third quarter, distributable cash flow was $71.9 million, an increase of 33% from last year.  The improvement was due to increases in revenue and decreases in general and administrative expenses.

Cash and cash equivalents as of September 30, 2011 were $150.1 million versus $95.5 million as of December 31, 2010. The partnership’s liquidity at quarter-end was strong with $300 million available under its credit facility.

Long-term debt of the partnership as of September 30, 2011, was $786.3 million versus $661.1 million as of December 31, 2010. During the quarter, the partnership invested $8.2 million to acquire coal reserves in Pennsylvania and Illinois.  The partnership also funded $3.6 million associated with remaining obligations on two previously announced acquisitions. 

Looking Forward

Encouraged by the strong third-quarter results, the partnership now expects coal production to be near the top end of its previous guidance range of 42-50 million tons. The partnership expects the other metrics, when excluding third quarter impairment, to exceed the upper end of the previous guidance ranges.

At the Peer

Peabody Energy Corporation (BTU - Analyst Report), which competes with Natural Resource Partners L.P., announced third quarter operating earnings of 87 cents per share, which missed the Zacks Consensus Estimate of 89 cents. The company’s profits for the quarter also dipped 12% from last year’s earnings of 99 cents, reflecting expenses related to the purchase of Macarthur Coal.

Our View

Natural Resource Partners currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long term Neutral recommendation on the stock.

Read the full analyst report on NRP

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