From your mouth to God's ear, as they say. But 2030 is way beyond my investing horizon. I'll be happy to be up over the next few months.
2 things I'm really interested in - 1. the status of the contract dispute where a customer is trying to break the contract due to EPA requirements about the coal that ARLP is delivering. I'm not expecting any real update. I'm more concerned that other customers might try to join the dispute because their contract prices are way above current spot.
2. White Oak - who are they selling to and what's the sales contracting status.
Good luck to all tomorrow morning.
Credit Suisse has a report out on CNXC this morning, with an Outperform rating and a $ 22 price target. You can see it on E*Trade's or Schwab's site, and probably a few other brokers as well if you're interested. Basically they say that things are bad but not as bad as the current price indicates.I doubt this will mean anything to CNXC's price today.
Full disclosure - CS was one of the firms that handled CNXC's IPO.
Doesn't the subordination period end with the next distribution in October, as long as they pay 47 cents in October?
The current owner of the terminal, Raven Energy, purchased the facility in June 2011 for $ 73 million. At that time, its capacity was 4 MM tons. It has now been expanded to 10 MM tons and obviously Raven spent something for that expansion. Now SXCP is buying the terminal in the worst market for coal in anyone's lifetime for $ 412 million. I suspect SXCP paid an optimistic full price.
The current owner of Raven, Mr. Cline has a track record of selling coal assets at full price. He sold reserves to NRP for several hundred million dollars that turned out couldn't be mined. He also sold most of his NRP units in the $ 20s and $ 30s, compared to the current $ 2.60 price. He sold a controlling interest in FELP to Murray Energy a short while ago, and FELP's price has tanked since then.
The major user of the terminal seems to be FELP, based on statements in FELP's 10-K. There are other customers because the numbers don't match up otherwise. But FELP is the biggest customer. And FELP said in February "Our international sales are legacy transactions that were entered into several years ago and are either hedged or fixed prices contracts that are impacted by the current price weakness in the international market." Later they added "So with the declining sales book into the international market from the 6.5 million-ish tons last year to 4.5 million-ish tons this year." And somewhere they added that with the strength in the US dollar and the drop in coal prices, they had not signed any new contracts for the export of coal since 2013.
I was tempted to buy back into SXCP until this announcement came out. But not now.
Actually, in a bankruptcy, the bankrupt estate can choose to continue or cancel its existing contracts. Until very recently, most coal companies that filed for bankruptcy were still cash flow positive at the mine - the bankruptcy was due to overleveraging or employee post-retirement costs. So the companies had an incentive to continue the leases and keep mining.
With prices where they are now, it's a closer decision. But in NRP's favor is that closing a mine accelerates all the miner's remediation expenses, among other things. So the miner's creditors have some incentive to keep the mine going, if only so they won't have to split what little they may get with the reclamation obligations. So right now there's no easy answer.
And as polytechic said, lower production will eventually lead to higher prices.
At current prices, NRP is not trading on any fundamental data. It's all stock trading driven. It could be up or down 20% tomorrow and I couldn't say I would be surprised.
But it's better today to be up 20% than yesterday (or last week) when it was down 20% in a day, to state the obvious.
SO OCIR's parent sold its GP interest and its LP interests in OCIR to a Turkish company. I didn't see a price. But all the Turkish company bought was the parent's interests - it didn't offer to buy out the public unitholders. And presumably NRP keeps its interest in OCI Wyoming.
I still think NRP would be better off selling its interest in OCI Wyoming, depending on the price and multiple, of course. But not today.
If your reason for holding is the expectation of $ 100 oil, why not skip NRP, with all its coal baggage, and just buy an E&P company/MLP?
Hello, nice to see a new poster.
NRP has 2 significant money making operations - coal royalties (the historical business) and the investment in OCI Wyoming (soda ash). Nothing else is making any real money. The expansion into oil & gas has been pretty much a disaster, and the VantaCore operation is basically breaking even, after interest expense.
Coal royalties have traditionally had a better-than-90% gross margin. But over the last 4 years, they have been tanking. Q1 2015 royalty income was 43% less than it was in Q1 2011. Every year it has dropped 10 - 20% from the year before and the cumulative drop, as I said, has been 43%. The drop has been offset a little by minimum royalties that NRP can recognize as income because the lessee can no longer get a credit for the minimums. While that helps in the short term, it means that the lessees aren't mining enough coal, which hurts in the long-term. NRP has added some ancillary coal businesses so the overall coal-related gross revenue drop isn't as bad, but those other coal-related businesses don't have the kind of margins that royalties have.
So I wouldn't get too excited about the gross revenue line, until NRP can show that the revenue is dropping to the bottom line.
The real issue with NRP is timing. Even after the recent stretch out of the OPCO debt maturity, NRP has $ 500 MM in debt repayments coming due this year, 2016 and 2017. And then in 2018 alone, another $ 500 MM comes due. In my view, the biggest question is whether NRP can satisfy all the debt covenants long enough to pay down or refinance this debt, and how much additional interest will it cost them to refi the debt they can't repay.
But at $ 2.70, it's probably a reasonable bet.
Just an aside - I don't know how much you invest in MLPs, but they have been tanking just about across the board recently. I'm not sure why the tanking started again in earnest on July 1, but it has. So NRP isn't alone in this.
The tax issue is really dumb and small, in light of the damage done to NRP's price which is the real issue.
But here it is. Every MLP has made an IRC Section 754 election. This election allows the MLP to compute a tax depreciation deduction based on the amount you paid for your units, to the extent that your price exceeded your pro-rata share of the the MLP's tax basis book value. This deduction is just a timing issue because you recapture the deduction as ordinary gain when you sell. So if the MLP has a $ 10 per unit tax basis book value and you buy units at $ 25, the MLP will compute a depreciation deduction on the $ 15 difference and allocate it to you on your K-1. When times are good, this results in an extra tax deferral for MLP holders.
But the election works the other way, too. NRP's GAAP book value is around $ 6 per unit; I have no way of knowing what the tax basis book value might be so I'm sticking with the $ 6. When someone buys NRP at $ 2.70, the partnership will allocate a negative deduction (taxable income) based on the $ 3.30 difference and allocate that income to the people that bought in at $ 2.70.
I didn't own NRP long enough in 2013 or 2014 to get any significant income or loss on my K-1 from NRP. But in prior years, NRP used to generate positive taxable income on the K-1s I received. So maybe the added income might be an issue.
To state the obvious, NRP has dropped from $ 9 to $ 2.70 this year. That's the real issue in deciding whether to buy. The risk that you might get a little more taxable income allocated to you isn't a big deal. At most it's just adding insult to injury.
And this issue has absolutely no impact on those people that bought in at higher prices. It just affects people that bought in very recently.
The reclamation costs only kick in when the mine closes. NRP only shows Patriot as a lessee of 2 mines and as far as I know, those mines haven't closed (yet), and Patriot creditors (like the pension plan) are suing Peabody and ANR for their contributions to Patriot's problems. NRP's only possible exposure would be the reclamation costs and ancillary environmental problems. I don't think those problems have really surfaced yet.
And I think NRP's free fall trading in July probably doesn't directly relate to NRP's problems. I don't think anyone cares enough to do any research. People are just dumping MLPs in general, and anything coal-related specifically. NRP has become too small cap to merit anyone's research efforts.
Don't get me wrong - the drop from $ 35 a few years back to $ 4 was all due to NRP's problems and fears about coal that turned out to be right. I'm just saying that the current drop isn't directly related to any NRP problem, I think.
But I think there may be a tax problem lurking for people that buy now. I'll have to think about that, though.
First in a series of posts. I’ll bet you can hardly wait.
To state the obvious, NRP’s units have been in free fall this year. They have dropped 71% since December 31. They have dropped 28% in just the last 2 weeks or so. There hasn’t been any unexpected news in the last 2 weeks, so I think the fundamental reason for the drop has to be a re-evaluation of the coal industry, and the technical reason is basically people throwing in the towel.
I bought back in at $ 3.60 and added at $ 3.00 so once again my timing on NRP has been perfect. All I can say in my defense is that I missed almost all of the drop from $ 20 down to $ 2.71. I am now being stubborn in not selling. So I’m trying to convince myself that things are worse than I realize for NRP. This post and the next ones are basically me trying to convince myself to sell. Here’s my latest reason.
One of the advantages that NRP enjoys is that it does not operate any coal mines so it’s not subject to operating risks. In its 10-K NRP says it has limited exposure to environmental risks. I think that assertion is going to be tested by some of its lessees’ bankruptcy filings, as well as by some of its lessees’ not being able to self-bond, or obtain surety coverage, for remediation costs, which has been in the news for the last 6 months.
That’s the summary and feel free to ignore the next posts. They are just quotes from NRP’s 10-K, with some comments from me. I know that companies warn about everything under the sun in the 10-Ks to limit their liability to investors. I know that I have always ignored these warnings. I don’t think I can ignore them any longer.
And I’d like to thank moneyonomics for pointing these parts of the 10-K out to me.
You and I follow the same stocks, it seems. I bought some EVA shortly after the IPO and sold it around $ 18. So I took my loss and avoided some further pain as it has continued to drop a little.
General comment - MLPs as a group have underperformed the market for several years now (obviously it depends on the area the MLP operates in) so just about everything is down some. Then, within the MLP space, some areas get more attention than others. For coal names, the attention has all been negative and most of this has been correct.
Then you get to the orphan MLPs - the ones that operate in an area where they are the only MLP out there. SXCP is one of these and another is EVA. As you know, EVA takes wood and makes pellets out of it. It then sells the wood chips to coal-fired power plants, mostly in the UK, where wood chips count as a renewable. So the wood chips help the coal-fired plants satisfy the European requirement for renewable energy. That sounds really dumb to me, but that's what I read.
Anyway, EVA ultimately relies on coal-fired power plants for demand. I think there is 1 UK utility that is EVA's largest customer. So that's strike one.
Secondly, as the only wood chip MLP, I don't think there is any analyst coverage at all and most people have never heard of the company or the business model. So that's strike 2.
And EVA's float (units held by the public) is incredibly small. Again, that hurts interest from the public and the analysts.
So I originally thought EVA would be like OCIR, a small MLP that doesn't correlate to the overall MLP market, and I bought it for diversification. I was wrong, at least in my timing.
Until the whole MLP market improves a bit, I'm still on the sidelines.
And I would think the transportation costs for moving coal from Mongolia are slightly less than moving it from West Virginia.
The US coal export markets have been a disaster for almost 2 years now. FELP, which is NRP's biggest lessee, is a big exporter ("big" being a relative term; It's probably the biggest exporter of thermal coal from the Eastern US, but there are much bigger exporters in the western US). Anyway, FELP has warned for more than a year that they have not been able to sign a single contract to export thermal coal for almost 2 years now. The biggest problem is that as the price of thermal coal has dropped, the shipping costs (which haven't dropped) make exporting noncompetitive with other sources. The second biggest problem is the strength in the US dollar, which makes other countries' coal exports more competitive.
And for met coal, where eastern coal is also exported to Asia, has other problems - China slowdown in demand, Australia has advantages in foreign exchange and shorter transportation, to name a few.
Overall, US coal exports (thermal and met) dropped almost 20% between 2013 and 2014, and they have dropped another 20% so far this year, per the EIA. Throw in the lower sales price per ton, and Eastern US coal exported are dying.
NRP doesn't own any interest in OCIR. NRP actually owns a 49% interest in OCI Wyoming (OCIR owns the other 51% of OCI Wyoming). So NRP's interest in OCI Wyoming should be worth something close to OCIR's entite market cap. In addition, OCIR has IDRs which depress its units' value somewhat. Since OCI Wyoming is not subject to the IDRs, NRP's interest might be worth more than OCIR's market cap.
So NRP's interest in OCI Wyoming is worth maybe $ 400 MM - $ 500 MM and hopefully this value will be highlighted when OCIR's parent sells its interest in OCIR.
But saying that NRP's interest in OCI Wyoming is worth more than NRP's entire market cap is missing the point. NRP also has $ 1.4 billion in debt. So NRP's equity value (the part that you and I own, presumably) has to be discounted for the debt.
Unsurprisingly, challenging results should be expected across the space. We update 2Q estimates to reflect spot price deterioration and tweak shipment estimates. Our average EBITDA estimates are 4% below consensus. We highlight Alliance Resource Partners as our top pick and believe its White Oak transaction solidifies distribution growth potential.
You might be right on the revenue line, but GAAP earnings might be anything.
First, maybe everything that I am about to say is premature, since ARLP announced the White Oak deal in July. So maybe everything I am posting will apply in Q3 rather than in Q2 (or maybe I'm just totally wrong).
The GAAP rules have changed in many respects since I retired, so I could easily be wrong about what I am going to say. But ARLP bought out the other owners in White Oak at a price that may indicate that ARLP's investment has been impaired (depending on the split between the Class A and B units that ARLP purchased). So it wouldn't surprise me to see an impairment charge.
Also, ARLP has been booking income from the royalties and handling fees that White Oak pays ARLP. This income has been more than offset by ARLP's booking 100% of White Oak's losses. But once ARLP starts to consolidate White Oak, the intercompany revenues may no longer be booked. I wouldn't think that would have a big effect on the bottom line, though, unless White Oak is just paying minimums in excess of usage.
I haven't seen anything I would consider news, but there was an analyst upgrade this morning.
Shares of Voxx International Corp. climbed more than 15 percent in midday trading Monday after the maker of audio equipment and automotive and consumer electronics was raised to a rating of "buy" from "neutral" at Los Angeles brokerage B. Riley & Co.
Stock of Hauppauge-based Voxx added $1.25 to $9.26 in midday trading.
Last week, Voxx posted fiscal first quarter net sales of $164.4 million versus $187 million in the year-ago period. It said the impact of the strong dollar and the sale of a distribution business in Mexico accounted for $15 million of the decline.
B. Riley analyst Scott Tilghman set a 12-month price target of $11 on Voxx shares, according to Bloomberg.
Riley has followed VOXX for a few years now. I have no idea why they upgraded.