Q4 2021 Natural Resource Partners LP Earnings Call

Good morning, My name is Chris and I'll be your conference operator today.

This time I'd like to welcome everyone to the natural resource partners L. P fourth quarter 2021 earnings call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there'll be a question and answer session.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

To withdraw your question. Please press star one again.

As a reminder, this conference call is being recorded.

Thank you Tiffany Sammis manager Investor Relations you may begin.

Thank you good morning, and welcome to the natural resource partners fourth quarter 2021 conference call.

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

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 <unk> Form 10-K , and 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.

Additional details and reconciliation to the most directly comparable GAAP measures are included in our fourth 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.

I refer you to assist a gym researches public disclosures and commentary for specific questions regarding our soda ash business segment.

Now I would like to turn the call over to Craig Nunez, Our president and Chief operating Officer.

Thank you Tiffany and good morning, all I am pleased to report that strong demand for metallurgical coal thermal coal and soda ash in the fourth quarter of 2021.

Produced one of the best quarters in terms of free cash flow in the partnership's history.

While COVID-19 remains a risk factor for the global economy, we expect to generate robust free cash flow in the months ahead.

And plan to continue using that cash to pay down debt solidify our capital structure and paid common unit distributions.

The fourth quarter also witnessed the closing of our first carbon sequestration transaction for which we received approximately $14 million in exchange for agreeing to sequester roughly 1 million metric tons of carbon dioxide or C. O two in our West Virginia Forest land.

We followed that with a second sequestration transaction announced earlier this quarter, which involves the underground storage of C O two.

Granted Danbury, the right to develop AC sequestration project on approximately 75000 acres of subsurface poor space, we control and southwest at Alabama.

Which then Barry believes has the potential to be a world class storage facility with over 300 million metric tons of capacity.

We expect this project if developed to be the first of what will potentially be numerous subsurface sequestration project projects conducted on the approximately $3 5 million acres, where we own the rights to sequester C O two across the United States.

In addition to C O two sequestration, we continue working to identify opportunities on our large acreage footprint to realize value from the generation of electricity using geothermal solar and wind energy.

As with our C O two sequestration activities and consistent with our royalty business model, we anticipate little to no capital investment will be required or in RP related to these opportunities.

While it's difficult to predict the timing and likelihood of cash flows from these activities. We believe they have the potential to provide benefits to the environment add value to an RP and position the partnership to benefit from the translational energy economy.

Over the last 12 months, we generated $123 million of free cash flow and paid off $39 million of debt, we expect our free cash flow to remain strong in the coming months.

Our cash flow cushion, which is the free cash flow remaining after paying our private placement debt amortization and distributions on our common and preferred units has increased dramatically from pandemic lowes and we expect it to continue to rise in the months ahead.

Partnership continues to maintain robust liquidity and ended the quarter with $136 million of cash and $100 million of unused borrowing capacity.

Metallurgical coal prices are strong as robust demand for steel continues to more than offset lingering pandemic related challenges.

Global met index prices have risen to record highs in recent months and we believe most of our met coal lessees have taken advantage of these favorable market conditions to negotiate higher sales prices for 2022.

This isn't their expiring 2021 contracts as a result, we anticipate benefiting from higher met royalty revenues in coming months.

The ongoing China, Australia, political and trade dispute that began in 2020 continues to benefit U S. Net producers as Chinese manufacturers procure met coal from other regions, allowing north American coal to make its way to destinations previously served by Australian producers while we.

We have no way to predict the timing or eventual outcome of this matter, we have yet to see meaningful signs of resolution in the near term.

Thermal coal prices also remain strong.

Post pandemic economic growth has driven increased electricity demand with additional support provided by the recent spike in energy prices associated with the war in Ukraine.

Realized benefits for an RFP from higher thermal prices have been modest so far since most of our thermal cash flows in 2021 were fixed pursuant to our contract with foresight energy that went into effect as they emerge from bankruptcy in 2020.

That fixed payment agreement terminated at the end of 2021, and we are now receiving traditional royalty payments.

We expect to benefit from higher thermal coal royalty cash flows in the to the extent demand and prices for thermal coal remains strong.

Turning to soda ash in December a publicly traded Turkish conglomerate names. This a jam acquired a majority stake in the managing partner of our Wyoming soda Ash business, which is now known as <unk> of Jam Wyoming.

This is Jan brings extensive experience to our soda ash venture given its soda ash operations in Turkey in Europe in glass manufacturing around the world. We are looking forward to working with this is jan to build on the significant value realized by our partnership with the generic group, which continues to own a minority stake.

This is Jan Wyoming.

Global soda ash demand has been strong in recent months led by robust residential construction general industrial activity and accelerating demand for solar power and energy storage at the same time global soda ash supply has been constrained with China production operating below capacity and European.

Synthetic soda ash producers voluntarily curtailing production due to high energy costs.

Our soda Ash segment posted strong results in the fourth quarter, driven primarily by higher export prices.

Softening in Ocean freight rates from the peak reached in October .

This is an Wyoming has been experiencing input cost inflation, but management has been successful at passing increased cost to customers. As a result. This is Jan Wyoming increased the quarterly distribution paid to us in February to $13 million up from the $7 million received in the fourth quarter.

There are 2021.

We continue to believe we have the right strategy in place to create unit holder value.

2015, when we began to Delever and Derisk. The partnership in RP has paid down nearly $950 million of debt paid over 135 million of common unitholder distributions established robust liquidity and dramatically improved our capital structure.

The fourth quarter of 2021 was one of the best quarters in the partnership history with respect to free cash flow generations and those results were achieved with a fraction of the capital deployed in previous years, we remain steadfast in our commitment to focus on maximizing unit holder value by continuing these efforts.

And with that I will turn the call over to Chris to cover our financial results.

Thank you Craig and good morning, everyone.

During the fourth quarter, we generated $55 million of operating cash flow and $56 million of net income.

Moving to our business segment results I'd like to begin by noting that we have renamed our coal royalty and other segment to mineral rights.

To better reflect our extensive portfolio of mineral ownership across the United States as well as our focus on leveraging our asset footprint to participate in the transitional energy economy as Craig discussed earlier.

There have been no change to the assets that make up this business segment only a change to the name.

During the fourth quarter of 2021, our mineral rights segment generated $68 million of operating cash flow and $60 million of net income.

Fourth quarter 2021 segment free cash flow net income improved $34 million and $38 million, respectively compared to the prior year quarter, primarily as a result of stronger demand and pricing for metallurgical coal and our forests carbon sequestration transaction.

Metallurgical coal made up approximately 55% of our total coal royalty sales volumes and approximately 75% of our coal royalty revenue during the fourth quarter of 2021.

Moving to our soda Ash business segment net income in the fourth quarter of 2021 improved $5 million as compared to the previous year quarter, primarily due to increased demand for soda ash from the lows caused by the COVID-19 pandemic.

Free cash flow in the fourth quarter of 2021 improved $7 million as compared to the prior year quarter. As a result of this is Jan Wyoming's decision to reinstate the regularly quarterly the regular quarterly distribution in November of 2021.

Our corporate and financing segment costs increased $2 million in the fourth quarter of 2021 as compared to the prior year quarter, primarily due to an increase in incentive compensation as a result of the significantly improved operating results and 2021.

Free cash flow was relatively fat flat in the fourth quarter of 2021 as compared to the prior year quarter.

Regarding distributions in November of 2021, we paid a quarterly <unk> 45 per common unit distributions in a quarterly distribution of $8 million to our preferred unitholders when half of which was in cash and one happened kind as was required by our bond indenture due to our leverage ratio being above.

375 times at the end of the third quarter of 2021.

However, as our mineral rights in soda ash segments business performance improved in the fourth quarter of 2021, our leverage ratio dropped well below the 375 times threshold and ended the year at two seven times.

As a result in February of this year, we fully redeemed all outstanding paid in kind preferred units at par and.

And announced and paid cash distributions that included 45 per common unit and $7 5 million to our preferred unit holders.

And I'd, just like to close by noting that our leverage ratio significantly improved during 2021 from four six times at the beginning of the year down to two seven times at year end and we expect our leverage ratio to continue to decline as we continue to pay down our debt.

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

Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad and we'll pause for just a moment.

Again that is star one if you'd like to ask a question.

And it looks like we have no questions at this time I'll turn the call over to Craig Nunez for any closing remarks.

Thank you and thank everyone for participating in our call today and thank you for your continued support of an RFP and have a great day.

Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating you may now disconnect.

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