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Natural Resource Partners LP Message Board

  • jrad52 jrad52 May 2, 2013 10:30 AM Flag

    My Q1 guess

    Now that most coal mine operators have reported, we can guess a bit about NRP’s results.

    In Northern App, NRP’s major lessees are CNX (Hibbs Run) and ARLP (Beaver Creek). I think this is ARLP’s only mine in NAPP, so it’s easy to match up. Price and production were flat with Q1 2012. You can’t match up the CNX mine with any specific disclosure given out by CNX, but in 2012, the mine produced about 33% of CNX’s thermal coal. In Q1, CNX’s price and production of thermal coal were down about 5% from Q1 2012. This should have no effect on NRP since the royalty on this mine is a low fixed rate.

    In CAPP, NRP’s major lessees are ANR, ACI and Patriot. Patriot is in bankruptcy, and it’s not that big a lessee, so no information or impact there. ANR disclosed that in Q1 2013, its Eastern Steam Coal division had about 17% lower volume and 5% lower prices than in Q1 2012. ANR accounted for almost 25% of the production at NRP mines, so this certainly indicates a major hit to NRP’s CAPP results. No surprise there.

    In Southern App, which I think has the majority of NRP’s met coal, the major lessee is CLF. CLF disclosed essentially flat met coal production overall and 10% lower prices in Q1 versus Q1 last year.

    So my guess is that NRP’s coal royalties, which were $ 59.9 million in Q1 2012 ($ 28 million met coal, the rest thermal), will probably fall to the low $ 50 million range. My rough calculation shows around $ 52 million. The revenue drop basically all falls to the bottom line, so I would expect EPS to drop to about 40 cents, excepting any unusual items. CAD is always weak in Q1; last year it was only about 34 cents per unit, so I expect it to drop to about 27 cents. Not enough to jeopardize the distribution yet, but getting closer.

    FWIW. I’m probably off by a mile, but we’ll see.

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    • See today's comments regardingt NRP (Issued BUY recommendation) by THE STREET in the Wall Street Journal. It's their #2 buy recommendation for income producing stocks. If this stock goes below $22.00 I intend to double up my holdings. .

      • 1 Reply to floodkid2003
      • I don't see the Wall Street Journal connection, but I wouldn't put much faith in The Street's recommendations. I don't want to argue too much because that might make you think I'm arguing against NRP, which I am not. I just don't like The Street (or Motley Fool). Today, most of The Street's arguments are based on some computer comparing 2012 results (or Q4 results) to 1 year earlier. 1 year earlier, NRP has several impairment charges that killed GAAP EPS for 2011 and especially Q4 2011. So 2012 looked great in comparison. If you adjust for unusual items such as impairments, NRP's comparisons wouldn't have looked so good. Only a computer wouldn't have noticed.

        Under $ 22 a buy? Maybe, depending on what NRP says in its earnings release. It really feels like coal is hitting bottom (as an investment, maybe not if I were a miner). There are a few things we need to keep it going - China picking up steel demand, and nat gas prices continuing to rise would be nice.

    • Two other factors I'm interested in here are 1)how is Potash affecting profits? And 2) Is NRP's MET share static or increasing? Both can be significant in going forward. If you look at the latest NRP presentation you'll see that prior to the potash acquisition the NRP 2012 revenue from aggregates/oil&gas/other was 13%. The pro forma number is shown as 25%. Now, if the NRP coal revenues slip in the first Quarter I think it reasonable that 2013 Q1 revenue for NRP aggregate/oil&gas/other be 30+%. After all, farming is planting BIG this year and fertilizer demand is high. NRP also noted that its' share of MET market is 20-25% and has ranged as high as 30%...So, now we are in a downturn...in my experierence downturns are periods where little fish get chomped on by big fish.....Bottom line is that I think it possible that NRP will come out of Q1 in reasonable shape...I also am curious whether NRP will extend its' business model into agriculture..I can't see any difference whatsoever between owning/leasing coal reserves and owning/leasing farmland and forests. In fact, I'm guessing that NRP could make a ton of money if it worked the numbers right.

      • 1 Reply to ake05bono
      • I'm not sure I understand you. You refer to potash, but I didn't think NRP was involved in potash. Are you referring to the soda ash acquisition that NRP made in late January? I ignored it for Q1 because NRP only owned it for 2 months. Also, I have no idea how to estimate/guess at its effect on cash flow and profits. And soda ash is used in industrial operations, not agricultural. But if you saw potash, you're probably right and I mus have missed it.

        Generally I ignore everything except coal royalties for NRP, because that's where the money is. In 2012, coal royalties amounted to about 70% of NRP's gross revenues, but almost 90% of cash flow. It's not quite at 90% of GAAP earnings because of noncash depreciation and amortization expenses, but it's pretty high.

        I give NRP credit for trying to diversify away from coal, but it takes a while to accomplish the goal. PVR (also was a coal royalty MLP) has tried to diversify away from coal with 1 big acquisition in the Marcellus, and I didn't like betting the farm on 1 deal. So I like NRP's more gradual approach. I just don't see it paying big dividends in Q1. It would be nice to be wrong, except that I don't currently own any NRP and I'm hoping for a drop after the earnings release to buy in.

        Anyway, any information you can post about potash and NRP would be helpful. I tried a quick look at the web site and didn't see anything.

    • Last year NRP had $8.5 milion in incentive payments and $4.3 million in property taxes. These two numbers will probably be about the same this year. There were other once per year charges. They also had a one time gain of $9.6 million from the Gatling Mine closure. I hope that your 27 cents is correct. Also hope that they keep the 2013 full year guidance given earlier. That is my big worry. I don't think that they can do this with current met coal prices.
      Good information jrad.

      • 1 Reply to ayscuew
      • Sorry, I have to retract my guess. I don't think the incentive comp or property tax adjustments will change much this year; NRP has them every year in Q1, which is why CAD is so weak in Q1 every year. But I had forgotten that Q1 2012 included the $ 9.6 million minimum royalty when the Gatling mine closed. That obviously won't recur. So that's another 9 cents off the cash available for distribution. So my new guess is 20 cents or a bit less.

        And if it makes things easier, my name is Jim.

 
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