Q2 2021 Natural Resource Partners LP Earnings Call

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Good day in thank you for standing by.

Welcome to day natural resource partners second quarter, 2021of earnings call.

At this time, all participants are in listen only mode.

So to speak of his presentation, there will be of question and answer session.

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I would now like to hand, the call Entre in silver to your speaker today is different as Thomas manager of Investor Relations. Please go ahead.

Good morning, and welcome to the natural resource partners second quarter 2021 conference call.

Today's call is being webcast and a replay will be available on our website.

Joining me today are Craig Nunez, President and Chief operating Officer, Chris <unk>.

Chief Financial Officer.

And Kevin Craig Executive Vice President.

Some of our comments today may include forward looking statements, reflecting <unk> views about future events.

These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward looking statements.

These risks are discussed in anarchy in form 10-K in other Securities and Exchange Commission filings.

We undertake no obligation to revise or update publicly any forward looking statements for any reason.

Our comments today also include non-GAAP financial measures Covid.

No details in reconciliation to the most directly comparable GAAP measures are in.

Included in our second quarter press release, which can be found on our website.

I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals.

In addition, I refer you to general resources public disclosures and commentary for specific questions regarding our soda ash business of men.

Now I would like to turn the call over to pregnant.

Didn't in Chief operating officer.

Yeah.

Thank you Tiffany and good morning, all in RP continues to operate under CDC guidelines in companies tend to make work protocols.

I am pleased to report that our business continues to improve as the global economy recovers from the pandemic in do shocks of the began in last year.

I'm in for metallurgical coal thermal coal in soda ash is strong in prices for those commodities have increased significantly since the beginning of the year.

While the current resurgence of COVID-19 infections in the U S in various regions of the world.

I like the ongoing risk of COVID-19 poses for the global economy.

We remain cautiously optimistic that the worst impacts of the pandemic for our company are behind us.

Furthermore, in as you've heard me say repeatedly in the past we remain quite pleased with the partnership's durability during challenging economic environment as demonstrated by its ability to generate free cash flow continue paying down debt and maintain strong liquidity throughout the past year in a half.

We believe this durability will continue.

Over the last 12 months, we generated $75 million of free cash flow in <unk>.

Paid off $46 million of debt.

Our cash flow cushion, which is the free cash flow remaining after paying our private placement debt amortizations and distributions on our common and preferred units was negative by only $13 million. We continue to focus on and maintain robust liquidity and ended the quarter with $98 million of cash.

In $100 million of unused borrowing capacity.

Demand in prices for metallurgical coal are up significantly from the beginning of the year reset.

Resurgence steel demand driven by global economic recovery is more than offsetting continued pandemic related challenges for met coal.

The ongoing China, Australia, political and trade dispute appears to have been of positive for U S producers as Chinese manufacturers realize supply chains to procure of met coal from other regions, allowing north American coal to make its way to destinations previously served by Australia in producers.

International benchmark prices for met coal has more than doubled since the beginning of this of year amidst significant volatility fluctuating within a range of $103.215 per ton.

In RP has yet to fully realize significant benefits from higher met prices, but we expect that will change in the coming months.

As you will recall most of our lessees met coal is sold pursuant to contracts of up to a year in duration. So we do not have much sensitivity to short term price movements.

We expect most of those sales contracts to renew in the third and fourth quarters of this year at higher levels, which should provide upside to our net cash flows in the year ahead.

Thermal coal demand in prices are also showing significant strength with API 2 prices recently topping $140 per ton of over 100% since the beginning of the year.

Increase in electricity demand driven by a rebound in U S economy kind of strong winter burn.

Primary drivers behind the price run up.

The positive impact for us from recent thermal in price increases have been modest so far since the substantial majority of our thermal cash flows this year, our fixed pursuant to our contract with foresight energy that went into effect as they emerge from bankruptcy in 2020.

That fixed payment agreement terminates at the end of this year and we will begin to receive traditional royalty payments starting January.

As a result, we expect to benefit next year to the extent demand in prices for thermal coal remains strong.

Turning to our investment in general Wyoming Global demand for soda Ash has shown significant improvement this year in is that pre pandemic levels international.

International stock prices have risen over 35% since the beginning of the year, our joint venture in Green River, Wyoming is operating at pre pandemic levels in customer demand for our product is strong.

While general Wyoming revenues in profitability have risen significantly over the course of the year increases in ocean freight rates have been a drag on the bottom line looking forward new lockdowns around the world due to COVID-19, and supply chain constraints on auto production have the potential to weakened demand for soda.

In the coming months.

We expect soda ash pricing in logistics costs to remain volatile into 2022 as the market attempts to find a new equilibrium amidst a rapidly changing economic environment.

In light of these uncertainties, we do not expect general Wyoming management to resume regular cash distributions to us until market conditions stabilize.

While the near term near term outlook is uncertain, we are quite optimistic about the intermediate and long term prospects for our soda ash investment.

Our asset is 1 of the lowest cost producers of soda ash in the world.

We believe our operating partner General resources collectively with its parent we some of them is the best in most capable operator of natural soda ash in the world.

These factors position us well to generate attractive margins and robust cash flows over the long term.

As mentioned on our last 3 earnings calls we continue working to identify alternative revenue sources across our large portfolio of land mineral in timber assets.

Types of opportunities. We are exploring in include sequestration of carbon dioxide underground and in standard for us.

In the generation of electricity using geothermal solar and wind energy.

While the timing and likelihood of cash flow is being realized from any of these activities is uncertain. We believe our large ownership footprint throughout the United States will provide opportunities to create value in this regard with minimal capital investment by in RP.

The partnership's ability to continue generating free cash flow reduce debt and pay unit holder distributions during the COVID-19 downturn.

Demonstrates that we have the right strategy in place to create unit holder value.

Since 2015, when we embarked on our strategy of Delevering and Derisking in the partnership in.

In our opinion has paid down over $920 million of debt paid over $125 million of common unitholder distributions and worked to solidify our capital structure and ensure strong liquidity.

We remain steadfast in our commitment to focus on maximizing unitholder value by continuing these efforts.

That I will turn the call over to Chris to cover our financial results Chris.

Thank you Craig in good morning, everyone.

During the second quarter, we generated $13 million of operating cash flow in $15 million of net income.

Our coal royalty in other segment generated $32 million of operating cash flow in 26 million of net income during this period.

Our coal royalty in other segments second quarter free cash flow.

Flat quarter over quarter as improved coal royalty cash flow in stronger demand in pricing for coal in the second quarter of 2021 was offset by the timing of fixed payments from fore sight as they emerge from bankruptcy in the second quarter of last year.

Our coal royalty in other segment second quarter net income in Peru.

$134 million in as compared to the prior year quarter, primarily because of a $132 million noncash asset impairment expense in the second quarter of last year, resulting from weak in coal markets, which are compounded by the COVID-19 pandemic.

Excluding asset impairments net income improved slightly quarter over quarter as increases in coal royalty revenues and lower operating and maintenance expenses were partially offset by higher DD&A driven by increased production at certain of Illinois basin coal properties as well as certain onetime items in 2020.

Metallurgical coal made up of approximately 50% of our total coal royalties sales volumes in approximately 65% of our coal royalty revenue during the second quarter of 2021.

Moving to our soda Ash business segment net income in the second quarter of 2021 improved $6 million.

As compared to the previous year quarter, primarily due to strength in soda ash demand and increased sales volume that were partially offset by increased ocean freight rates compared to the second quarter of 2020.

Free cash flow in the second quarter of 2021 was lower by $7 million as compared to the prior year quarter due to general earnings decision to suspend their quarterly distribution in August of 2020.

As Craig mentioned earlier, and we had mentioned in previous earnings calls General Wyoming continues to evaluate on a quarterly basis, whether to reinstate the quarterly distributions, but we do not expect general roaming management to resume regular cash distributions to us until market conditions stabilize.

We remain encouraged by generating in the ability to operate safely and effectively and we're confident in the long term earnings power of our soda ash business.

Our second quarter 2021, corporate and financing segment costs were $1 million lower in cash used was reduced by 500000 compared to last year's second quarter, primarily due to lower interest expense as a result of less desk less debt outstanding in 2021.

Regarding distributions in May we paid a quarterly <unk> 45 per common unit distributions in a quarterly distribution of $7.7 million to our preferred unitholders of <unk>.

Half of which in cash in 1 half in kind.

Additionally, today, we announced a quarterly cash distribution of <unk> 45 per common unit.

In a quarterly distribution of $7.8 million to our preferred unit holders also to be paid 1 half in cash in what happened kind of as required by our bond indenture.

These preferred unit distributions include interest on previously paid in kind of units, which will also be paid 1 app in cash in what happened kind of.

As we mentioned last quarter, the indenture governing our bonds of restricts us from paying more than 1 half of the quarterly distribution on our preferred units in cash if our consolidated leverage ratio exceeds 375 times.

And as of June 30 of 2021, our leverage ratio of 4.6 times.

In addition, under the terms of our partnership agreement. If we have outstanding paid in kind of preferred units in 2022, we'd be required to temporarily suspend calming of distributions until all paid in cod units have been redeemed.

We expect our leverage ratio to now being in a sustained long term decline as we continue to pay down debt and plan to redeem all outstanding patent guard units once our leverage ratio drops below 375 times.

And with that I'll turn the call back over to the operator for questions.

Thank you.

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Thank you operator.

And thank you all for listening to our call in reading our transcript and thank you for your support of in RFP.

And in.

We look forward to talking to you next quarter.

Best regards.

This concludes today's conference call. Thank you all for joining you may now disconnect.

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