Natural Resource Partners LP (NRP) continues to make good progress diversifying away from leasing its owned coal reserves in central Appalachia and the Illinois Basin. And that’s a good thing because the Company’s coal business has been under significant pressure. The reason for my update on this company is that Natural Resource Partners LP (NRP) recently presented at an industry conference. Please see the corporate slide show and listen to the presentation by .
In 2005, 54% of total revenues came from steam coal royalties in central Appalachia. Pro forma for the company’s February acquisition of a 49% interest in OCI Wyoming, a soda ash operation, 20% of revenues come from central Appalachian steam coal. Key to the presentation is that 25% of total revenues now come from non-coal related sources. That’s up from about 5% in 2005.
Diversification really kicking in
Of the remaining 75% of revenues which are coal-related, 55% comes from what I consider to be higher quality coal-related sources. For example, 26% of total revenues came from leasing coking coal reserves. The biggest customers in this segment are Alpha Natural Resources, Inc. (NYSE:ANR), and Cliffs Natural Resources Inc (NYSE:CLF). Neither of these producers is doing well at the moment, but both have more than adequate liquidity to survive the coal market downturn.
Alpha Natural Resources, Inc. (NYSE:ANR) is saddled with debt from the ill-timed acquisition of troubled Massey Energy in 2011. Since that time, Alpha has written down a lot of the legacy Massey mines. However, Alpha has spent the last two years cutting costs and streamlining operations. When the coal market recovers, Alpha will be there to benefit and Natural Resource Partners LP (NRP) will benefit from Alpha’s rebound.
Cliffs Natural Resources Inc (NYSE:CLF) is largely an iron ore producer with operations in the U.S., Canada and Asia. One-eighth of the Company’s production, about 6.5 million tons, came from coal in 2012. Importantly, Cliffs is committed to growing its coal business to balance out its heavy exposure to iron ore.
Natural Resource Partners LP (NRP) has been distributing a steady $0.55 per quarter for the past few years, giving it a 9.5% current yield. The unit price has been stuck in the low $20’s all year while other MLPs have moved higher with the overall stock market. By comparison, Natural Resource Partners LP (NRP) is quite cheap, yielding almost twice the average MLP. What is the average MLP?