Natural Resource Partners L.P. (NRP) completed its phased acquisition of 200 million tons of coal reserves in Deer Run Mine, Illinois from Colt LLC, a unit of Cline Group. This sixth and final leg of the planned acquisition cost the partnership $40 million and was funded by its credit facility. In total, the partnership paid $255 million for the entire reserve.
The partnership first announced about the planned acquisition in September 2009 and since then has steadfastly executed its plans. Incidentally, the fifth and previous acquisition of this series was also worth $40 million, which was funded by the partnership from its cash reserves. This acquisition was conducted in February 2012.
The acquisition of this coal reserve was well thought out. This Deer Run mine is one of the lowest cost underground mines in the U.S. and is connected to four different railroads and river markets. The benefit of easy transportation provides an additional advantage to the operator to deliver coal easily to end users.
This mine has generated $2.9 million on production of 0.63 million tons in the first six months of the year. However, once the long wall technology is fully implemented and operational, the annual production from this mine is expected to reach 7 million to 9 million tons.
As per an Energy Information Administration (EIA) report, coal will continue to be the major source of electricity generation in the U.S. until 2035. Even in a worst case scenario, coal will account for 36% of the U.S. electricity generation from 2010 to 2035. Since there is no dearth in domestic demand for thermal coal, the partnership will be able to capitalize on the coal produced from this mine.
During the second quarter earnings call, the partnership revised its earnings per unit estimates for the full year 2012. The partnership currently expects earnings per unit for 2012 in the range of $1.65 to $1.85, down from $1.65 to $1.95 projected earlier. We believe the longwall production from the Deep Run mine will definitely have a positive impact on the earnings of the partnership. The Zacks Consensus Estimate for 2012 is currently pegged at $1.78 per unit.
Natural Resource Partners operates in a competitive U.S. energy market and faces stiff competition from peers like Peabody Energy Corp. (BTU) and Cloud Peak Energy Inc. (CLD).
Based in Houston, Texas, Natural Resource Partners principally engages in owning and managing of mineral reserve properties. The partnership mainly owns coal, aggregate, and oil and gas reserves across the U.S. The partnership has a Zacks #3 Rank implying a short-term Hold rating on the stock.
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