On Oct 4, 2013, we maintained our Neutral recommendation on Natural Resource Partners L.P. (NRP). The Houston-based mineral reserve properties owner currently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
Natural Resource Partners delivered a lackluster performance in the last quarter due to weakness in the metallurgical (met) coal market and lower receipts from coal royalties. The reiteration takes into account the partnership’s exposure to price volatilities especially in a sluggish U.S. economy and amidst pressing regulatory obligations.
However, Natural Resource Partners’ focus on the development of its low-cost and profitable mines in the Illinois basin will lend significant stability to the future revenue stream. The completion of the 11% purchase of interest in the reserve-rich Bakken play from Abraxas Petroleum Corp. (AXAS) will boost the partnership’s growth trajectory.
In addition, the World Steel Association predicts a 3.2% increase in global steel utilization in 2014 which will drive Natural Resource Partners’ met coal sales. The implementation of longwall technology in the Illinois Basin mine will aid the partnership in minimizing its operating cost and increase production. We believe these strategic steps will support the partnership to achieve its expected revenue of $330-$375 million in 2013.
Furthermore, Natural Resource Partners’ favorable liquidity position will allow the partnership to maintain regular distribution payments.
Nevertheless, an increase in transportation cost and dependence on a few customers might act as growth deterrents for the partnership’s business.
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