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Natural Resource Partners L.P. Reports Second Quarter 2011 Results and Increases Guidance

08/03/2011

Second Quarter 2011 Highlights:
- Record distributable cash flow and revenues
- Net income per unit of $0.48
- Distribution of $0.54 per unit
- Metallurgical production accounted for 37% of production and 47% of coal royalty revenues for the first six months
- Narrows ranges and increases mid-point of all guidance except production and distributable cash flow

HOUSTON, Aug. 3, 2011 /PRNewswire via COMTEX/ --

Natural Resource Partners L.P. (NYSE: NRP) today reported record revenues and distributable cash flow for the quarter ended June 30, 2011. Quarterly revenues increased 15% over the second quarter 2010 to a record $91.4 million. Distributable cash flow, a non-GAAP measure, increased 32% to $83.9 million. Net income attributable to the limited partners increased 83% to a record $51.3 million. Net income per unit improved 26% to $0.48 from the $0.38 per unit reported for the 2010 quarter. A reconciliation of distributable cash flow to GAAP is included in the table at the end of the release.

(Logo: http://photos.prnewswire.com/prnh/20060109/NRPLOGO)

"NRP delivered record revenues and distributable cash flow for the first half of the year as a result of high coal prices, particularly for metallurgical coal, coupled with higher production from our Central Appalachian properties," said Nick Carter, President and Chief Operating Officer. "Central Appalachian quarterly production from our properties reached a level that we have not seen since the first quarter of 2009 and metallurgical coal for the six month period accounted for 37% of coal production and an unprecedented 47% of NRP's coal royalty revenues."


Highlights




Quarter
Ended
June 2011




Quarter
Ended
June 2010




%
Change
Quarter




Six
Months
Ended
June 2011



Six
Months
Ended
June 2010



%
Change
Six
Months


(in thousands except per unit, per ton and %)


Revenues








Total revenues:

$ 91,409

$ 79,587

15%


$ 176,261

$ 143,106

23%

Coal production:

11,538

11,767

(2%)


23,484

22,569

4%

Coal royalty revenues:

$ 69,788

$ 57,832

21%


$ 135,153

$ 104,993

29%

Average coal royalty revenue per ton:

$ 6.05

$ 4.91

23%


$ 5.76

$ 4.65

24%

Revenues other than coal royalties:

$ 21,621

$ 21,755

(1%)


$ 41,108

$ 38,113

8%









Net income








Net income to limited partners:

$ 51,305

$ 28,054

83%


$ 95,681

$ 44,918

113%

Net income per unit:

$ 0.48

$ 0.38

26%


$ 0.90

$ 0.63

43%

Average units outstanding:

106,028

74,028

43%


106,028

71,752

48%









Distributable cash flow:

$ 83,946

$ 63,792

32%


$ 122,921

$ 97,614

26%

Revenues

Second Quarter

Increases in realized prices for coal allowed NRP to generate record quarterly revenues of $91.4 million for the second quarter 2011, a 15% rise over the second quarter 2010. Coal royalty revenues improved 21% to a record $69.8 million. Average coal royalty revenue per ton increased 23% over the same quarter last year to a record $6.05 in the second quarter 2011 while production declined modestly to 11.5 million tons.

While revenues other than coal royalties were virtually flat at $21.6 million, NRP saw several significant increases in various categories. Aggregate royalties, coal processing fees, property taxes and overriding royalties all increased, offsetting declines in transportation fees, oil and gas royalties, minimums recognized as revenue and other. Aggregate production more than doubled in the second quarter 2011 over the same period last year, reflecting the benefits of the acquisitions made in 2010. In the second quarter 2010, minimums recognized as revenue included a $3.1 million minimum that was also received in the second quarter 2011, but was recorded as deferred revenue rather than as revenue.

Six Months

Revenues for the first six months increased 23% over the same period last year to $176.3 million due to increases in nearly every category. Coal royalty revenues increased 29% to $135.2 million due to a 24% increase in the average coal royalty revenue per ton to $5.76, while production rose 4% to 23.5 million tons.

Metallurgical coal accounted for 37% of NRP's production and 47% of its coal royalty revenues for the first six months of 2011 compared to 33% of production and 40% of coal royalty revenues in 2010.

NRP experienced an 8% increase in revenues other than coal royalty to $41.1 million, with significant increases in aggregate royalties, coal processing fees and oil and gas royalties. Aggregate production more than doubled while oil and gas royalties were significantly higher due to the acquisitions completed during 2010. Minimums recognized as revenue in 2010 included $6.2 million not shown as revenue in 2011 as discussed above.

Operating Expenses

Second Quarter

NRP incurred total operating costs and expenses of $26.6 million in the second quarter of 2011, down 4% from the $27.6 million reported for the second quarter of 2010. The second quarter of 2010 included approximately $900 thousand more in acquisition related expenses than the second quarter 2011.

Six Months

Operating expenses for the first six months of 2011 increased 11% to $55.6 million. The increased expenses were due to escalations in non-cash depreciation, depletion and amortization of $2.6 million and a $3.3 million rise in general and administrative expenses mainly due to additional personnel and associated costs.

Net income

Second Quarter

Net income to the limited partners increased $23.3 million, or nearly doubled, to $51.3 million in the second quarter 2011. Half of the increase was associated with increased revenues while $13.0 million was associated with the elimination of the incentive distribution rights that occurred in late September 2010. Net income per unit increased 26% to $0.48 per unit despite a 43% increase in the average number of units outstanding in the second quarter 2011 versus the same period last year.

Six Months

Net income to the limited partners increased $50.8 million, or 113%, for the first six months of 2011 when compared to the same period in 2010, predominantly due to improved revenues of $33.2 million. Also included is a $26.0 million improvement due to the elimination of the incentive distribution rights in September 2010. Net income per unit for the first six months rose by 43%, or $0.27 per unit, to $0.90 per unit, despite a 48% increase in the number of units outstanding during the respective time periods.

Distributable cash flow

Second Quarter

Distributable cash flow rose 32% over the second quarter of 2010 to a record $83.9 million for the second quarter of 2011. Approximately $11 million of the $20.0 million improvement was due to increases in revenue while the remaining $9 million was due to improvements in cash flow from balance sheet related items.

Six Months

Distributable cash flow increased $25.3 million, or 26%, to $122.9 million for the six months ended June 30, 2011 versus the same period last year due primarily to improved coal royalty revenues.

Second Quarter 2011 compared to First Quarter 2011




2Q11

1Q11

% Change



(in thousands, except per ton and per unit)


Total revenues:


$ 91,409

$ 84,852

8%

Coal production:


11,538

11,946

(3%)

Coal royalty revenues:


$ 69,788

$ 65,365

7%

Average coal royalty revenue per ton:


$ 6.05

$ 5.47

11%

Revenues other than coal royalty:


$ 21,621

$ 19,487

11%

Net income to limited partners:


$ 51,305

$ 44,376

16%

GAAP net income per unit:


$ 0.48

$ 0.42

14%

Average units outstanding:


106,028

106,028

-

Distributable cash flow:


$ 83,946

$ 38,975

115%


Revenues

Total revenues for the second quarter 2011 increased 8% over the first quarter 2011, to $91.4 million, mainly due to a 11% increase in the realized coal royalty revenue per ton. Average coal royalty revenue per ton rose $0.58 to $6.05, while coal production from NRP's properties declined 3% to 11.5 million tons. Revenues other than coal royalty increased $5.3 million or 11% due to increases in all categories except transportation fees and oil and gas royalties, which were down a total of $1.4 million.

Operating Expenses

Operating expenses for the second quarter of 2011 declined $2.4 million from the first quarter mainly due to decreases in general and administrative expenses associated with NRP's long-term incentive plan.

Net income

Net income to the limited partners rose $6.9 million to $51.3 million in the second quarter over the first quarter mainly due to increases in revenues during the second quarter. Net income per unit was $0.48 for the second quarter of 2011 compared to $0.42 per unit for the first quarter.

Distributable cash flow

Distributable cash flow increased $45.0 million, or 115%, to $83.9 million due predominantly to improvements in working capital items and increases in revenues.

Market Outlook

There has not been a significant change in the coal markets in the second quarter versus the first quarter of 2011. The steam coal markets continue to show improvements over 2010 levels but are still not back to pre-recession levels. Metallurgical coal markets remain stronger than the steam markets due to the global nature of the steel business and the growing demand for both metallurgical coal and coke by developing countries. Adding to the strength of the metallurgical market are supply disruptions caused by temporary closures of some metallurgical mines. The increased demand for seaborne metallurgical coal together with these temporary closures impeding supply have kept prices at near record levels and increased the demand for U.S. metallurgical coal. As a result, NRP expects record level of exports of coal, mostly metallurgical, in 2011. Metallurgical coal prices remain above $300 per metric tonne in the global markets today, well above prices experienced in 2010.

On the other hand, the thermal market in the United States continues to improve at a slower pace than the metallurgical market. Utilities are faced with dual issues of the continuing high coal stockpile levels and low natural gas prices that make that fuel competitive with coal for the generation of electricity. Thus, while NRP sees some lowering of the coal stockpiles at the utilities as reported by the EIA, the burn down of the utility stockpiles is not occurring at the same pace as the economic recovery largely due to fuel switching. The one factor that is showing some improvement for the U.S. thermal market is the advancement of thermal coal exports. Demand for U.S. thermal coal in the international market has been improving and most recently there has been a strike by miners in South Africa creating an even tighter supply. So while the level of exports of thermal coal will probably not reach the levels for metallurgical coal, it is improving and will give U.S. thermal coal producers another outlet for sales.

Acquisitions and Liquidity

In the first six months of 2011, NRP invested approximately $100 million in acquisitions that will lead to future growth for NRP. Most of the investment was related to the Deer Run mine in the Illinois Basin where we acquired additional reserves for $70 million. The remaining $30 million was used to acquire three previously announced aggregate properties. The Deer Run mine should add significant increases in coal production in the Illinois Basin in 2012. Remaining commitments on acquisitions at June 30 totaled $84.1 million of which $44.1 million is due in 2011.

As of June 30, 2011, NRP had $300 million in available capacity under its credit facility and approximately $146 million in cash. In the second quarter of 2011, NRP issued $250 million of additional senior unsecured notes, and is committed to issue another $50 million of senior notes in October of this year. NRP used most of the proceeds from the senior notes to repay all of the outstanding borrowings under the revolving credit facility, and has used, or will use, the remaining proceeds for acquisitions. "We believe that the combination of our capacity under our credit facility, our cash on hand and the pending issuance of an additional $50 million of senior notes gives us sufficient liquidity to meet our current capital needs and pursue further acquisitions," said Dwight Dunlap, Chief Financial Officer of NRP.

Guidance Update



Revised

2011 Guidance


Original

2011 Guidance


(Range)


(Range)

























Coal royalty revenues

$

255.0

-

$

270.0


$

235.0

-

$

270.0

Coal production(mm tons)


42.0

-


50.0



42.0

-


52.0

Total revenues

$

320.0

-

$

345.0


$

300.0

-

$

350.0













Distributable cash flow(1)

$

225.0

-

$

245.0


$

215.0

-

$

255.0

Net income per unit

$

1.50

-

$

1.70


$

1.35

-

$

1.70













(1) Estimated distributable cash flow includes $29.0 million for minimums that will be received in 2011 that will not be recognized as revenue until the coal is mined or the recoupment period expires.

NRP is narrowing the ranges and modestly increasing the midpoint of its guidance for the remainder of the year due to the record revenues experienced in the first half of 2011. While NRP has modestly reduced the midpoint of its production forecast for the second half, improved pricing for metallurgical as well as steam coal has allowed it to increase all other guidance.

"Although we benefitted in the first half of the year from our substantial exposure to metallurgical coal, we derived approximately 13% of our metallurgical coal revenues from the Pinnacle and Oak Grove mines," said Nick Carter. "The Oak Grove mine in Alabama suffered damage to its preparation plant due to a tornado, and is not expected to sell any coal in the third quarter. The Pinnacle mine in West Virginia has experienced a high level of carbon monoxide and remains closed until MSHA determines that the mine is safe. As a result, we expect to receive a lower percentage of revenues from metallurgical coal sales in the second half of the year."

Distributions

As reported on July 20, 2011, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.54 per unit, unchanged from the first quarter 2011. NRP's distributable cash flow coverage for the quarter was 1.4 times while for the first six months it was 1.1 times.

Company Profile

Natural Resource Partners L.P. is a master limited partnership headquartered in Houston, TX, with its operations headquarters in Huntington, WV. NRP is principally engaged in the business of owning and managing mineral reserve properties. NRP primarily owns coal, aggregate and oil and gas reserves across the United States that generate royalty income for the partnership.

For additional information, please contact Kathy H. Roberts at 713-751-7555 or kroberts@nrplp.com. Further information about NRP is available on the partnership's website at http://www.nrplp.com.

Disclosure of Non-GAAP Financial Measures

Distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for scheduled principal payments on the senior notes. Distributable cash flow is a "non-GAAP financial measure" that is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Distributable cash flow is a significant liquidity metric that is an indicator of NRP's ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to its partners. Distributable cash flow is also the quantitative standard used throughout the investment community with respect to publicly traded partnerships. Distributable cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. A reconciliation of distributable cash flow to net cash provided by operating activities is included in the tables attached to this release. Distributable cash flow may not be calculated the same for NRP as other companies.

Forward-Looking Statements

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements include the current coal market conditions and borrowing capacity. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership. These risks include, but are not limited to, decreases in demand for coal; changes in operating conditions and costs; production cuts by our lessees; commodity prices; unanticipated geologic problems; changes in the legislative or regulatory environment and other factors detailed in Natural Resource Partners' Securities and Exchange Commission filings. Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

-Financial statements follow-


Natural Resource Partners L.P.

Operating Statistics

(in thousands except per ton data)




















Quarter Ended


Six Months Ended







June


June


June


June







2011


2010


2011


2010







(unaudited)


(unaudited)


(unaudited)


(unaudited)

Coal Royalties:










Coal royalty revenues:










Appalachia












Northern



$ 5,180


$ 4,924


$ 9,861


$ 9,340



Central



55,119


38,526


100,561


70,334



Southern



3,447


6,074


8,188


10,275




Total Appalachia


$ 63,746


$ 49,524


$ 118,610


$ 89,949


Illinois Basin



4,771


6,819


13,831


11,029


Northern Powder River Basin


1,120


1,489


2,513


4,015


Gulf Coast Lignite



151


-


199


-

Total





$ 69,788


$ 57,832


$ 135,153


$ 104,993

Coal royalty production (tons):










Appalachia












Northern



1,199


1,251


2,374


2,498



Central



8,023


6,971


15,350


13,367



Southern



472


833


1,120


1,534




Total Appalachia


9,694


9,055


18,844


17,399


Illinois Basin



1,268


1,751


3,544


2,898


Northern Powder River Basin


425


961


905


2,272


Gulf Coast Lignite



151


-


191


-

Total





11,538


11,767


23,484


22,569

Average royalty revenue per ton:










Appalachia












Northern



$ 4.32


$ 3.94


$ 4.15


$ 3.74



Central



6.87


5.53


6.55


5.26



Southern



7.30


7.29


7.31


6.70




Total Appalachia


6.58


5.47


6.29


5.17


Illinois Basin



3.76


3.89


3.90


3.81


Northern Powder River Basin


2.64


1.55


2.78


1.77


Gulf Coast Lignite



1.00


-


1.04


-

Combined average royalty


$ 6.05


$ 4.91


$ 5.76


$ 4.65


revenue per ton










Aggregates:










Royalty revenues



1,737


1,064


2,931


1,880

Aggregate royalty bonus


94


(714)


94


(639)

Production



1,671


778


2,936


1,383

Average base royalty per ton


$ 1.04


$ 1.37


$ 1.00


$ 1.36


Natural Resource Partners L.P.

Consolidated Statements of Income

(in thousands, except per unit data)




















Quarter Ended


Six Months Ended







June


June


June


June







2011


2010


2011


2010







(unaudited)


(unaudited)


(unaudited)


(unaudited)

Revenues:












Coal royalties




$ 69,788


$ 57,832


$ 135,153


$ 104,993


Aggregate royalties



1,831


350


3,025


1,241


Coal processing fees



3,173


2,693


6,262


4,337


Transportation fees



3,745


4,043


7,843


6,818


Oil and gas royalties



1,996


2,087


4,988


3,186


Property taxes




3,577


2,782


6,589


5,433


Minimums recognized as revenue


1,841


3,418


2,348


6,792


Override royalties



3,492


3,157


6,535


6,124


Other




1,966


3,225


3,518


4,182



Total revenues



91,409


79,587


176,261


143,106

Operating costs and expenses:











Depreciation, depletion and amortization


16,166


16,485


30,488


27,853


General and administrative



6,439


6,794


16,635


13,342


Property, franchise and other taxes


3,306


3,498


7,003


7,232


Transportation costs



523


557


991


822


Coal royalty and override payments


159


301


467


993



Total operating costs and expenses


26,593


27,635


55,584


50,242

Income from operations



64,816


51,952


120,677


92,864

Other income (expense)











Interest expense



(12,429)


(10,346)


(23,016)


(21,075)


Interest income




16


4


24


12

Income before non-controlling interest


$ 52,403


$ 41,610


$ 97,685


$ 71,801


Non-controlling interest



51


-


51


-

Net income




$ 52,352


$ 41,610


$ 97,634


$ 71,801

Net income attributable to:











General partner




$ 1,047


$ 573


$ 1,953


$ 917


Holders of incentive distribution rights


$ -


$ 12,983


$ -


$ 25,966


Limited partners



$ 51,305


$ 28,054


$ 95,681


$ 44,918














Basic and diluted net income per










limited partner unit:



$ 0.48


$ 0.38


$ 0.90


$ 0.63














Weighted average number of units outstanding:

106,028


74,028


106,028


71,752


Natural Resource Partners L.P.

Consolidated Statements of Cash Flow

(in thousands, except per unit data)


















Quarter Ended


Six Months Ended






June


June


June


June






2011


2010


2011


2010






(unaudited)


(unaudited)


(unaudited)


(unaudited)

Cash flows from operating activities:










Net income


$ 52,352


$ 41,610


$ 97,634


$ 71,801


Adjustments to reconcile net income to











net cash provided by operating activities:











Depreciation, depletion and amortization


16,166


16,485


30,488


27,853



Non-cash interest charge, net


118


141


268


291



Non-controlling interest


51


-


51


-


Change in operating assets and liabilities:











Accounts receivable


2,199


(2,966)


(2,331)


(5,085)



Other assets


310


(101)


532


119



Accounts payable and accrued liabilities


662


331


(485)


98



Accrued interest


8,902


6,814


1,868


(322)



Deferred revenue


7,764


7,628


13,198


20,641



Accrued incentive plan expenses


1,697


1,181


(1,130)


(1,340)



Property, franchise and other taxes payable


1,425


549


(1,413)


(503)




Net cash provided by operating activities:

91,646


71,672


138,680


113,553

Cash flows from investing activities:











Acquisition of land, coal and other mineral rights

(14,546)


(64,261)


(99,368)


(110,411)



Acquisition or construction of plant and equipment

(163)


(2,102)


(325)


(2,102)



Disposition of assets


1,000




1,100






Net cash used in investing activities


(13,709)


(66,363)


(98,593)


(112,513)

Cash flows from financing activities:











Proceeds from loans


250,000


35,000


335,000


81,000



Debt issuance costs


(1,052)


-


(1,052)


-



Proceeds from issuance of units


-


110,436


-


110,436



Repayment of loans


(187,633)


(83,350)


(202,826)


(98,542)



Capital contribution by general partner


-


2,350


-


2,350



Retirement of obligation related to acquisitions

(4,025)


-


(4,025)


(2,969)



Costs associated with issuance of units


(108)


(152)


(140)


(152)



Distributions to partners


(58,422)


(54,039)


(116,845)


(97,387)




Net cash provided by (used in) financing activities

(1,240)


10,245


10,112


(5,264)

Net increase or (decrease) in cash and cash equivalents

76,697


15,554


50,199


(4,224)

Cash and cash equivalents at beginning of period


69,008


62,856


95,506


82,634

Cash and cash equivalents at end of period


$ 145,705


$ 78,410


$ 145,705


$ 78,410

SUPPLEMENTAL INFORMATION:











Cash paid during the period for interest


$ 3,400


$ 3,370


$ 20,859


$ 21,070














Non-cash activities:











Mineral rights to be received


$ -


$ 13,249


$ -


$ 13,249



Non-controlling interest


$ 373


$ (7,335)


$ 373


(7,335)



Obligation related to purchase of reserves and











infrastructure


$ 2,100


$ 1,723


$ 8,125


$ 6,200


Natural Resource Partners L.P.

Consolidated Balance Sheets

(in thousands, except for unit information)













ASSETS










June 30,


December 31,










2011


2010










(unaudited)


(audited)

Current assets:










Cash and cash equivalents





$ 145,705


$ 95,506


Accounts receivable, net of allowance for doubtful accounts


31,728


26,195


Accounts receivable - affiliates





4,713


7,915


Other







438


910



Total current assets





182,584


130,526

Land








24,543


24,543

Plant and equipment, net





57,438


62,348

Coal and other mineral rights, net





1,367,532


1,281,636

Intangible assets, net






156,775


161,931

Loan financing costs, net





3,272


2,436

Other assets, net






556


616



Total assets






$ 1,792,700


$ 1,664,036













LIABILITES AND PARTNERS' CAPITAL













Current liabilities:










Accounts payable and accrued liabilities




$ 1,402


$ 1,388


Accounts payable - affiliates





-


499


Obligation related to acquisitions




4,100


-


Current portion of long-term debt




30,801


31,518


Accrued incentive plan expenses - current portion



6,444


6,788


Property, franchise and other taxes payable



5,513


6,926


Accrued interest






11,679


9,811



Total current liabilities





59,939


56,930

Deferred revenue






122,707


109,509

Accrued incentive plan expenses





10,561


11,347

Long-term debt






793,961


661,070

Partners' capital:










Common units outstanding (106,027,836)





787,560


806,529


General partner's interest





13,750


14,132


Non-controlling interest





4,743


5,065


Accumulated other comprehensive loss




(521)


(546)



Total partners' capital





805,532


825,180



Total liabilities and partners' capital




$ 1,792,700


$ 1,664,036


Natural Resource Partners L.P.

Reconciliation of GAAP Financial Measurements

to Non-GAAP Financial Measurements

(in thousands)












Reconciliation of GAAP "Net cash provided by operating activities"

to Non-GAAP "Distributable cash flow"
















Quarter Ended


Six Months Ended





June


June


June


June





2011


2010


2011


2010





(unaudited)


(unaudited)












Net cash provided by operating activities


$ 91,646


$ 71,672


$ 138,680


$ 113,553

Less scheduled principal payments


(8,633)


(9,350)


(23,826)


(24,542)

Less reserves for future scheduled principal payments

(7,700)


(7,880)


(15,759)


(15,939)

Add reserves used for scheduled principal payments

8,633


9,350


23,826


24,542

Distributable cash flow



$ 83,946


$ 63,792


$ 122,921


$ 97,614












SOURCE Natural Resource Partners L.P.

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