Not much good to say about the next 2 Q's distributions. Cs is cutting its estimates for those to 68 cents total. I thought CS had already announced that they had cut its projections, but in any event they reiterated them again this AM. But CS has nice things to say about 2014 and 2015 as a whole, and they upgraded NTI to OP.
This won't help NRP or its lessees, even if BTU's prediction pans out. In the same presentation, BTU predicted that demand in the Powder River Basin and Illinois Basin would increase by 135 million tons per year between 2012 and 2017. But all other US basins would see a net decrease in demand of 5 million tons per year over that same period.
Unfortunately, only 20% of NRP's coal reserves are in the Powder River and Illinois Basins. The other 80% is in Appalachia. The same BTU presentation shows that 151 US coal mines were idled in the first half of 2013, the largest number of them being in CAPP, where NRP jas most of its reserves.
The presentation shows that met coal spot prices have rebounded by 15% from "recent lows" whatever that might mean. I didn't see WLT of CLF mention that met coal prices were strenthening when they released Q2 numbers. But if it's true, it would eventually help NRP.
BTW, I also saw that WLT recently sold senior notes due in 2019 with a 9.5% interest rate. So NRP's offering was in line with that. But WLT's balance sheet is really ugly.
The lower tax rate increased earnings by $ 10 million. In Q1 this year, BBBY showed a higher tax rate that reduced earnings by $ 10 million. So YTD, the tax rate is basically the same, this year vs last year.
So enjoy the run. Or not, depending on your position.
I really don't know how much is metallurgical coal. NRP doesn't disclose that. NRP has 8 major mine complexes in CAPP, and 3 of them are purely thermal coal. The other 5 produce both thermal and met coal, but I have never seen that the company says how much is either type of coal.
As a ballpark guess, I think that in 2012, NRP's CAPP lessees mined 13 or 14 million tons of met coal, versus 12 or 13 million tons of thermal coal. This estimate of met coal production sounds high to me, even tho I'm the one who came up with it. Total 2012 production at all of NRP's mines was 54.4 million tons. NRP says that 32% of 2012 production was met coal, so total met coal production was about 17.4 million tons. The only mines that NRP specifically discloses are met are 1 in NAPP with very small production - 200,000 tons in 2012, and 1 in Southern APP, leased to CLF with 2012 production of 2 million tons. NRP doesn't mention met coal in itsIllinois Basin mines, and there's no met coal in the NPR out west. So that leaves about 15 million tons to be accounted for. I'm sure that there is some small production in each region that NRP doesn't mention, so maybe 13 or 14 million tons comes from CAPP.
But that's just a guess.
CAPP is the hardest hit coal mining area. It's mostly underground mines, which make it expensive to mine. The offset is that it is generally lower sulfur content. As utlities adopt scrubber technology, though, they can use higher sulfur coal. The Illinois Basin uses more surface mining, and its higher sulfur content coal is much cheaper than CAPP coal. So the shift has been from CAPP to IB. See ARLP for an example of an IB coal producer that's probably the only coal miner still doing well.
NRP has stressed several IB investments it has made. But its problem is that 53% of its coal reserves are in CAPP. Production from CAPP year-to-date is only 38% of NRP's tonnage, which indicates the extent of NRP's problem. Its coal is in the wrong place.
The new debt has really got me spooked. They could have raised the same $ 300 million by cutting the distribution 20%. That cut, together with the saved interest expense by not issuing the new debt, would have saved NRP $ 300 million by 2018. Normally I wouldn't suggest cutting the distribution. But the interest rate is incredibly high for 5-year paper. The lenders must really be focusing on next few years and seeing worse things coming.
I'm confused. My understanding is that KMP is by far the country's largest CO2 producer and transporter, and has been in the business for years. And the article doesn't mention them?
As to the numbers mentioned in the article, 1 of KMP's investments is in a dome in Colorado that produces 1.21 billion cubic feet/day of CO2. They have an interest in a similar dome in NM that has the same amount of CO2, but I don't know the daily production. KMP has always said these domes were the lowest cost source of CO2. So I'm not sure how competitive the coal-fired plant is.
And I think the recent HedgeEye article on KMP focused on its field that use CO2 recovery methods, saying KMP was spending a fortune on the fields without seeing any increase in production.
I don't own PVR any more so I'm confused. They announced the ATM offering on 8/23 for something like 6 million units with Merrill Lynch (up to $ 150 million in proceeds), and now they do an old fashioned secondary for 5.5 million units with Barclays as the sole broker? Any idea what's going on? Do they need that much cash?
Even assuming everything you say is true (there's some doubt about the 1 plant per week in China; a lot of the new plants replace old coal plants), all those facts have been true for the past 2 years, and it hasn't helped a single US coal miner.
Has another article about US coal problems. Not the most unbiased source, the Times mentions that last week China banned the construction of new coal-fired electric plants in the areas around Beijing, Shanghai and Guangzhou to control air pollution. They also report that the EPA is expected to issue new proposed regulations next week that would make the construction of new plants here in the US virtually impossible without advanced and expensive carbon capture and sequestration technologies.
They cite some consulting group that says coal use for electricity could be cut in half by 2020.
Having said all that, I don’t understand the need to do the debt offering right now, on these terms. NRP has zero debt due from now through Dec 31. It has a bit more than $ 50 million due from now through June 2014, and another $ 30 million in the second half of 2014. So I’m not sure I see the immediate need to extend the debt right now. NRP has been talking about its projected cash flow for this year (even if the numbers are inflated by the 1 time OCI restructuring, it’s still cash), and the numbers they mentioned would cover both the debt payments and the distribution.
The only justification I can think of for doing the debt deal today is that it frees up the revolver, and maybe NRP is ready to do another acquisition, hopefully noncoal. That might explain the new debt.
BTW, PVR (the other coal royalty MLP that's diversifying away from coal) did a $ 400 MM 8-year debt offering in May, maybe before the Fed announced the taper. They paid 6.5% for 8 year paper. I know rates are up since then, but I figured maybe 1.5% more, but the 5-year term should have reduced the cost somewhat. And now PVR has done an equity offering, also at a depressed price.
First, I was totally wrong as to what I thought the interest rate would be. I can't believe 9.375% for 5 year paper. It shows you how the debt markets and equity markets look at things differently. CLF, for example, has a much higher debt rating from Moody's, and its 5 year debt is trading at a yield in the 5% - 6% range. But I wouldn't touch the stock until I saw an uptick in the iron ore/met coal businesses.
Obviously, the debt market is focusing on the longer term issues, and not on the company's ability to pay the next Q's distribution. In my mind, the worst thing is that NRP’s debt now makes up 63% of total capital (debt + equity). This is up from 45% at the end of 2010, 57% at the end of 2011 and 61% at the end of 2012. So the 2 mine write-offs, coupled with the high distribution rate, have hit partners’ capital hard and the company has funded itself through debt. So debt has increased at a time when operating income and cash flow have been declining. Not a good recipe.
I would normally expect NRP to do an equity offering to bring the debt ratio down, but at today’s price, I doubt they would do it. Also, if they did an equity offering first, even if it tanked the stock price, I think they’d have gotten better terms on the debt. So I don’t think NRP is going to sell equity in the near future.
I would think a distribution cut is coming, but there’s a problem with that, too. I think if they were going to cut the distribution, they would do it before selling the new debt. Telling the creditors that less money would be going out the door to unitholders each quarter might have gotten the company better terms on the debt. So while I think they should cut the distribution, I don’t think that will happen too soon.
Message too long. I'll finish in a new post.
Is that it will take? OK, I'll buy 100. Has it bottomed?
I'm old and tend to see the downside too much. If you think about it, I would have been better off buying NRP in the $ 18s, collected 2 distributions, and my cost would have been in the $ 17s, which is what I was waiting for. So don't pay any attention to me. I'm not Warren Buffet. Altho I could be his CPA, maybe.
OCIR decided to go effective in the worst slump MLPs have had since 2009 or so. It's a tiny microcap, with less than $ 100 MM in free float, and I don't see how it will attract investor's interest (other than mine). I'm surprised they were able to sell the 5 MM units, but I doubt the bankers will pick up the overallotment. But it really has little effect on NRP, unless OCIR tries to buy NRP out. That would really make some sense, but I don't think it will happen.
It sure did, and boy is it tanking. Any time an IPO goes out at the low end of the range, it usually drops further.
I don't think OCIR's IPO has much effect on NRP, if any. NRP has a market cap of about $ 2.1 billion and an enterprise value of $ 3.2 billion. The value of NRP's investment in OCI can't be more than $ 400 million. So I don't think it's a big issue.
The bigger issue is that NRP management wants people to believe that its investment in OCI is generating almost $ 100 million in DCF in 2013. This is nonsense, since so much of this year's distributions from OCI are nonrecurring and come out of refinancings and earnings that were accumulated before NRP bought in. I think the public market for OCIR will help people focus on NRP's true cash flow from OCI, which won't help. But I also think NRP is pretty near its low unless we have another warm winter, or nat gas prices tank again. So I don't think the IPO means a whole lot, 1 way of another.
BTW, NRP made a great buy when they invested in OCI. They paid $ 290 million in January, have received back about $ 70 million so far, and have an investment that might be worth $ 400 million. So don't get me wrong - NRP has done great, and I hope they find similar opportunities elsewhere. I just don't think OCI is big enough to move the needle.
It looks like OCIR is getting pretty close to its IPO, and it should fix a value on NRP’s interest. This month, OCIR has filed 2 amendments to the S-1, and they have made some other filings that indicate they’re close to going effective.
OCIR (51%) and NRP (49%) together own OCI. OCIR is the entity that is going public. They expect to have 19 million units outstanding after the IPO, with a targeting IPO price of $ 20 and a market cap of $ 390 MM. OCIR will have IDRs owned by its GP that will kick in pretty quickly. The planned distribution to start is 50 cents per Q, and the IDRs start to kick at when the distribution reaches 57.5 cents per Q. So the $ 390 MM market cap isn’t the true value of the whole business. I would guess (and it’s strictly a guess; it’s hard to place a value on the IDRs until they kick in or someone projects when the company will start paying them) that the entire value of OCIR will be somewhere in the $ 450 MM - $ 500 MM range to start. NRP owns the entire other 49% of the OCI operation, so the value of its interest should be pretty similar.
At $ 20, OCIR will carry a planned yield of 10%. Pretty high for a non-coal MLP. On the other hand, it doesn't look like the operation has much growth potential. So if people focus on the yield, I would think the units will trade higher. If they focus on growth, not so much.
NRP paid $ 292 MM for its interest only 8 months ago, and got $ 45 MM back when the OCI ]operation restructured in July. So its net investment is about $ 250 MM and it looks like it might be worth $ 450 MM when the IPO happens.
At 50 cents per Q, OCIR will be paying out about $ 40 MM per year in distributions, when there are no IDRs. NRP should be receiving a similar amount, or $ 10 MM per Q. This is a bit less than it has been getting,