Natural Resource Partners L.P. Reports Record Second Quarter Revenues and Increases Guidance

HOUSTON, Aug. 4 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP) today reported that improved coal markets led to record revenues and significantly higher second quarter 2010 results. Distributable cash flow, a non-GAAP measure, increased 30% over the second quarter of 2009 to $63.8 million. Net income attributable to the limited partners of $28.1 million increased $23.3 million or 484% over the same period last year. Net income per unit increased significantly to $0.38 from the $0.07 per unit reported for the second quarter 2009.  Adjusting for a one-time write-off in 2009, net income attributable to limited partners increased $15.2 million and net income per unit in 2010 doubled that of 2009.  Reconciliations of distributable cash flow to GAAP and adjusted net income per unit are provided in the tables at the end of the release.

"NRP's financial performance improved for both the quarter and the first half, as prices realized by our lessees for both metallurgical and steam coal were higher than those experienced since the start of this recession.  As a result of the higher prices, revenues and coal royalty realizations per ton were at record levels for the second quarter," said Nick Carter, President and Chief Operating Officer.  "The metallurgical coal market is much stronger than a year ago and has stabilized at relatively high levels and the steam coal market is improving fairly significantly.  The cold winter and the hot summer weather experienced so far in the coal consuming regions of the country have led to lower stockpiles at the utilities and increasing demand."

Revenues

Second Quarter

NRP reported record quarterly revenues for the second quarter 2010 of $79.6 million, a $20.1 million increase, or 34%, over the second quarter 2009 mainly due to increases in the realized prices for coal.  While production in the second quarter was virtually flat with that of last year's second quarter, average coal royalty revenue per ton increased 25% over the same quarter last year to a record $4.91.  NRP's lessees realized higher prices for both steam and metallurgical coal in the second quarter.  

Revenues other than coal royalties increased 66%, or approximately $8.6 million, from the second quarter last year mainly due to:

• increased throughput on the coal processing and transportation assets generating an $847 thousand increase in fees;
• an increase of approximately $1.1 million in oil and gas royalties mainly due to the new venture with International Paper;
• a $3.1 million quarterly non-recoupable minimum recognized as income for each quarter of 2010, which after this year, will only be recognized as revenues when recouped through production;
• $1.8 million from additional production on override royalty properties; and
• a $1.9 million payment for granting a right-of-way easement in the second quarter 2010.

Six Months

The improvements seen in the second quarter are reflected in the six month numbers.  The increases in realized prices for coal more than offset the slight decline in production for the six month period.  Metallurgical coal accounted for 33% of NRP's production and 40% of its coal royalty revenues for the first six months of 2010.  

Operating Expenses

Second Quarter

NRP incurred total operating costs and expenses of $27.6 million in the second quarter of 2010, down by $4.2 million or 13% mainly due to lower depreciation, depletion and amortization expense realized in the second quarter of 2010 versus the second quarter 2009.  In addition, the second quarter of 2009 included a one-time write-off of $8.2 million associated with a closed mine.  Second quarter 2010 general and administrative expenses also included $1.2 million for costs associated with the formation of the venture with International Paper.

Six Months

Operating costs for the first six months of 2010, net of depreciation, depletion and amortization, were virtually flat with that of the prior year first six months.

Net income

Second Quarter

Net income to the limited partners increased significantly to $28.1 million in the second quarter 2010 over the second quarter 2009 of $4.8 million.  Net income per unit increased to $0.38 per unit even though there was an 11% increase in the average number of units outstanding in the second quarter 2010 versus the same period last year.  Excluding the write-off of a mine in the second quarter of 2009, earnings per unit for the second quarter of 2009 would have been $0.19, resulting in the second quarter 2010 earnings doubling over that of 2009.

Distributable cash flow

Second Quarter

Distributable cash flow increased $14.7 million, or 30% over the second quarter of 2009, to $63.8 million in the second quarter of 2010 due to the improved revenues period over period.

Second Quarter 2010 compared to First Quarter 2010

Revenues

Total revenues for the second quarter 2010 improved 25% over the first quarter 2010, to a record $79.6 million, mainly due to improvements in coal royalty revenues.  Coal production increased 9% while average coal royalty revenue per ton increased 12% to a record of $4.91.  NRP experienced increased production in all regions except the Northern Powder River Basin.  The largest increases occurred in Central Appalachia and the Illinois Basin where production increased approximately 600 thousand tons in each region.  Increased shipments in Central Appalachia were equally split between metallurgical and steam coal production as the markets began to improve. The increase in the Illinois Basin was due to improved production following a longwall move that occurred predominantly in the first quarter.  Revenues other than coal royalty increased $5.4 million primarily due to increased throughput on the coal processing and transportation assets accounting for a $2.3 million increase, approximately $900 thousand from the one month of the new joint venture and $1.9 million from the right of way easement discussed earlier.  Aggregate royalties were basically flat for the two periods but a negative accrual adjustment for the aggregates bonus received with respect to the 2009 performance of the DuPont Washington property caused the reduction in the total.

Operating Expenses

Operating expenses for the second quarter of 2010 were comparable with the first quarter except for depreciation, depletion and amortization, which included increased amortization of certain intangibles due to increased production for the second quarter and changes in estimate on our contract amortization.

Net income

Net income to the limited partners increased 66% in the second quarter to $28.1 million, reflecting the improved production and the pricing experienced in the coal industry this quarter, while per unit increased slightly less than net income on a percentage basis, due to the additional units issued in early April.

Distributable cash flow

Distributable cash flow increased 89% this quarter to $63.8 million from last quarter due to the improvements in revenues as well as increased minimums received this quarter.

Current Market

The coal markets have improved significantly over the last six months.  Metallurgical coal prices increased substantially in the first half of the year and have now stabilized at prices approximately twice that of a year ago. In addition, the steam coal stockpiles at utilities are significantly lower than six to nine months ago.  The weather over the last nine months in the coal producing region has contributed significantly to the lowering of these stockpiles.  Demand for steam coal has been increasing domestically and, while the growth in demand for metallurgical coal has slowed somewhat recently, it has improved significantly over the last year.  Utilizations at steel mills have improved domestically and there has been strong demand globally.  

Guidance - Update

NRP is narrowing the ranges and increasing its guidance for the remainder of the year due to the record revenues experienced in the first half of 2010.  While NRP has modestly reduced its production forecast for the second half, improved pricing for metallurgical as well as steam coal has allowed it to increase all other guidance.  

Metallurgical coal accounts for 37% of total coal royalty revenues and 32% of production for the revised forecast.

Acquisitions and Liquidity

As previously announced, early in the second quarter 2010 NRP issued 4,576,700 units generating $112.5 million in proceeds, $74 million of which was used to repay the outstanding balance on the credit facility at that time and the remainder was used to fund acquisitions in the second quarter.

During the second quarter, NRP completed four acquisitions totaling $72.7 million, $66.5 million of which was funded during the quarter.  An additional $2.7 million has been paid since the end of the quarter and another $3.5 million will be paid before year-end.  The largest of these acquisitions was the $42.5 million invested in the new venture with International Paper that will own, manage and develop the more than 7 million mineral acres formerly owned by International Paper.  The remaining three acquisitions included aggregate properties in California and Georgia and the construction of a limestone processing facility in Indiana for a combined purchase price of $30.2 million.

"With the equity offering completed at the beginning of the second quarter, the $265 million that we have available on our credit facility, the $78 million in cash at the end of the second quarter, and the improvements in the coal markets, NRP believes it has the capital available to fund its committed capital obligations and maintain its distribution at the current level through the remainder of 2010," said Dwight Dunlap, Chief Financial Officer.

Distributions

As reported on July 21, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.54 per unit, unchanged from the first quarter 2010.

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.

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.

SOURCE Natural Resource Partners L.P.