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Natural Resource Partners LP Message Board

  • ayscuew ayscuew Dec 20, 2011 6:39 PM Flag

    Appalachia mines!

    Highest cost! How much (percentage) of NRPs mines are in Appalachia???

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    • My comment about Appalachia percentage came from 2010 annual report, page 36 "current results".
      In that same annual report on page 35 it was stated that NRP was paying IDR holders "24 % of quarterly distribution plus 48 % of increase in distribution". Am I reading that correctly? If so the buyout was not so bad especially if distribution funds increase significantly.
      Appreciate your input jrad.

      • 1 Reply to ayscuew
      • Sorry. I misread your post to say 51%, but you actually had posted 61%. My mistake. But still, you had asked about the % of NRP's mines in Appalachia. Per the 10-K, 88% of NRP's coal reserves were in Appalachia. The lower % of revenue in 2010 was because NRP has revenue from sources other than coal royalties, which lowers the % of revenue from coal royalties.

        As to the IDRs, yes they were getting 24% of the total distribution thru June 30, 2010. But NRP gave the IDR holders about 30% of the company's units (32 million to the IDR holders out of a total of 106 million outstanding after the deal) to buy out the IDRs. Presumably they got more than 24% because the IDRs were sharing in 50% of any incremental distributions.) NRP has to increase its distribution quite a bit to make this worthwhile. They aren't there yet because they haven't raised the distribution meaningfully since the IDR buyout.

        I have the computation on my computer at home, but I think the distribution has to get to 65 cents or a bit higher to make the deal nondilutive. But that's just whining on my part because the deal has happened and there's nothing anyone can do about it. Today, the issue is that investors like MLPs that are growing their distribution. Without the IDRs as a burden, NRP would normally be able to raise its distribution nicely. But the increased unit count is making this difficult. Until this happens, I doubt we will see NRP outperform.

    • I have no idea where you got your percentage. Also, you're worrying about the wrong thing.

      You asked what % of NRP's mines were in Appalachia. Going by reserves, almost 88% of NRP's coal reserves were in Appalachia as of 12/31/10, the last time I saw a breakdown of reserves. By revenue or production, about 2/3 of 2011 production and 75% of 2011 royalties were from Appalachia. Because NRP also has other revenues than royalties, the percentages change depending on exactly what you're comparing, but strictly trying to answer your question (% of mines in Appalachia), NRP is way over 51%.

      If you break down Appalachia by region (Northern, Central and Southern) the largest region in Central Appalachia, and just considering that region, you get down into the mid 50% range, but that wasn't actually your question.

      And don't worry that it's the highest cost area. It is also the highest priced steam coal, and NRP's highest royalty rates, because of (1) location, and (2) energy content. With long-term contracts in place, NRP's problem is if utilities change over to nat gas for pricing or EPA concerns, and that's more of a gradual problem. The EPA is just getting started on nat gas fracking, for example, whereas it's dumping on coal right now. But it's not a day-to-day problem for investors today.

      The day-to-day problem right now (I think) is tax loss selling. If I'm right, NRP should start to rebound in very very late December or January. If the market is OK, and NRP doesn't get a bounce, then there's a real problem. But for now, I'm assuming it's tax loss selling. We'll see soon enough if I'm right.

      I expect to buy some NRP in the next day or 2, FWIW, and sell it in January.

    • Sixty one percent in 2010. Trying to grow in the Illinois Basin.

 
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