Q1 2025 Natural Resource Partners LP Earnings Call
Speaker Change: Hello and welcome to the Natural Resource Partners LP First Quarter 2025 earnings conference call. All lines have been placed mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask questions during this time, send a press star followed by the number one on your telephone keypad. If you would like to withdraw your question, start one again.
Speaker Change: I would not like to hand the call over to Tiffany Sammis in best relations you may begin.
Speaker Change: Thank you, good morning, and welcome to the Natural Resource Partners first quarter 2025 conference call. Today's call is being webcast and replay will be available on our website.
Speaker Change: Joining me today are Craig Nunez, President and Chief Operating Officer, Chris Zolas, Chief Financial Officer, and Kevin Craig, Executive Vice President.
Speaker Change: Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements.
Speaker Change: These risks are discussed in NRP's Form 10K and other securities in exchange commission
Speaker Change: We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Speaker Change: Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP measures are included in our first quarter press release which can be found on our website.
Speaker Change: I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular pull-lessy or detailed market fundamentals.
Speaker Change: Now I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.
Craig Nunez: Thank you, Tiffany, and good morning, everyone. NRP generated $35 million of free cash flow in the first quarter of 2025, and $214 million of free cash flow over the last 12 months.
Craig Nunez: Price is for metallurgical coal, thermal coal, and soda ash to climb precipitously over the last year and negatively impact at our results.
Craig Nunez: As you've heard us say for over a year now, we expect weak prices for all three of our key commodities to persist for the foreseeable future and provide a drag on our performance.
Craig Nunez: Despite this, we expect to continue generating robust free cash flow, which we will use to pay off remaining debt, which stands at $118 million today.
Craig Nunez: We are now reaping the rewards of the capital allocation decisions made over the last decade. Our capital structure is solid and our financial outlook is bright. We look forward to the prospect of significant increases in unit holder distributions as debt is paid off next year.
Craig Nunez: Armino Wright's business generated $44 million of free cash flow in the first quarter of 2025.
Craig Nunez: sluggish demand for steel, relatively high inventories at power plants, and an uncertain geopolitical environment have pressured metallurgical and thermal coal prices to levels that we believe are at or near the cost of production for many producers.
Craig Nunez: and there are no clear catalysts inside to push prices materially higher in the near term.
Craig Nunez: With that being said, Operator Cost Inflation has increased the break even coal sales prices for our less ease.
Craig Nunez: As a royalty owner, we benefit from higher sales prices without having to bear the burden of our operator's higher costs of production. As a result, we believe the royalty revenue we receive at our operator's break even levels is higher today than in the past.
Craig Nunez: Turning to soda ash, we received $3 million in cash distribution from Shisha Jam, Wyoming in the first quarter of 2025, an 80% drop from the previous quarter, year quarter.
Craig Nunez: So to ask prices remain at the lowest levels in decades, with sales prices trading below the cost of production for many producers.
Craig Nunez: We believe we are in the early innings of this soda ash bear market given the current supply demand imbalance and that it will take multiple years for global markets to fully absorb excess supply and stabilize at materially higher price levels.
Craig Nunez: While we have seen some high-cost production shut down globally, most notably in the United Kingdom, Poland, and Argentina, the scale has been too small to materially benefit the market so far.
Craig Nunez: We take comfort that Shishijam Yomine is one of the world's lowest-cost producers. While distributions will likely remain at these lower levels in the near term, our positive long-term view of our so-dash investment has not changed.
Craig Nunez: Regarding carbon neutral initiatives or C&I, the slowdown that we expected for the general market for most C&I activities has materialized.
Craig Nunez: Leasing interest for underground carbon sequestration remains lackluster, has political, regulatory, and market uncertainties, posed significant hurdles for developers contemplating large capital investments for these types of projects.
Craig Nunez: We are, however, continuing to see activity in the geothermal solar and lithium space, and are making small-scale progress on several initiatives.
Craig Nunez: While the timing and likelihood of future free cash flow from C&I activities is uncertain, we still believe our vast ownership footprint provides opportunities for carbon neutral cash flow while requiring minimal capital investment bias.
Craig Nunez: and with that, I will turn the call over to Chris. Thank you, Craig. In the first quarter of 2025, ENERP generated 40 million of net income, 34 million of operating cash flow, and 35 million of pre-cash flow.
Chris Zolas: Our mineral rights segment in Q1 2025 generated 45 million of net income, 43 million of operating cash flow, and 44 million of free cash flow.
Chris Zolas: When compared to the prior years' first quarter, our mineralized segment net income decreased 15 million and operating in pre-cash flow decreased 27 million and 26 million respectively.
Chris Zolas: The decreases were primarily due to weaker steel demand that resulted in lower metallurgical coal sales prices and volumes.
Chris Zolas: Met Cole made up approximately 55% of our co-eualty revenues in 40% of our co-eualty sales volumes in Q1 2025 compared to 75% of our co-eualty revenues in 50% of our co-eual sales volumes
Chris Zolas: Shifting to our soda ash business segment, net income in the first quarter of 2025 decreased 1 million in both operating and free cash flow decreased 11 million as compared to the prior year period.
Chris Zolas: These decreases were primarily due to a lower weighted average net sales price resulting from an increased percentage of sales into a lower price international market in 2025.
Chris Zolas: International sodash pricing has declined significantly from the record highs seen in 2023, primarily due to weakened demand for flat glass from the construction and automobile markets.
Chris Zolas: and additional soda ash supply from China. We expect prices in our distributions received from Sissajam to remain muted until demand rebounds in the soda ash market is able to absorb this additional supply.
Chris Zolas: In wrapping up with our Corporate and Financing segment, Q1 2025 Second Performance is relatively flat as compared to the prior year period, Q1 operating cash flow and free cash flow each improved 1 million as compared to the prior year period due to lower interest payments from less debt outstanding.
Chris Zolas: Regarding our quarterly distributions in February of 2025, we've paid a fourth-order 2021-24 distribution of 75 cents per common unit.
Chris Zolas: and in March of 2025 we've made a special distribution of $1.21 per common unit to help cover the tax liability associated with owning NRP common units in 2024.
Chris Zolas: Today we announced a first quarter 2025 distribution of 75 cents for Common Unit to be paid later this month.
Mark: And with that, I'll turn the call back over to Mark, our Operator for Questions.
Mark: We will now begin the question and answer session. If you would like to ask a question, simply press star, follow straight the number one on your telephone keypad. And if you would like to withdraw your question, press star one again.
Mark: Again, if you would like to ask a question, simply press star, followed by the number one on your telephone keypad.
Philip Bremer: And our first question comes from the line of Philip Primer with PLC Marketing, Philip. Please go ahead.
Philip Bremer: Do you have any anticipation of what the dividend may be one year from this quarter?
Speaker Change: Good morning. No, we don't at this point have an anticipation of that one year from now. I will say that
Speaker Change: We do anticipate that distributions will be high on our list of cash flow priorities and to the extent that we don't need cash internally to bolster the balance sheet.
Speaker Change: to do anything else that you're going to see distributions going back to unit holders.
Speaker Change: Okay, well congratulations on your strategy of debt production and the execution of it.
Speaker Change: I was just curious whether you were going to prioritize share bybacks or dividends.
Speaker Change: I would suggest that in order prioritization, I think of it this way for our uses of cash. Number one is liquidity balance sheet strength. We have to make sure that we...
Speaker Change: We don't find ourselves in a position that we found ourselves in the past because of poor capital structure. And then to the extent we've satisfied that, next on the list priorities would be the distribution.
Speaker Change: then unit repurchases if it was possible to repurchase units at what we would think would be material discounts to intrinsic value and then last would be opportunistic type acquisitions that if we were able to purchase things at prices that provided a margin of safety.
Thank you.
You bet.
Speaker Change: And your next question comes from the line of David Speer with Nature Capital. Please go ahead.
Hi, how are you guys?
Good morning.
Speaker Change: Just as a way, as a possibility of, you know, speeding up the capital returns process, is there any, you know, opportunities to, you know, either sell assets or monetize assets, take advantage of?
Speaker Change: The disconnect between the market value of the company and essentially the private asset value of some of your assets is just way of them using those proceeds to pay down the debt to then speed up capital returns.
Speaker Change: Just candidly, we do not have plans to sell any of our assets. We tend to be as a royalty owner and mineral owner. We tend to be an acquirer.
Speaker Change: and a long-term holder of those assets. We find that over time, that tends to be the best way to maximize value. I will say, however, that if we felt an opportunity existed
Speaker Change: to monetize an asset, add some value that was in excess of what we believed the asset wasn't inherently worth. It's intrinsic value to us. We would certainly consider that, but I think those will be not frequent opportunities.
Speaker Change: and then a longer term. I mean, are there any other mineral-right packages, even on coal, where given dissentiment towards the coal industry, overall, where there would be opportunities to pick up?
Speaker Change: You know, other packages is over time and you can really scale your existing corporate infrastructure where you get some benefits and the creative benefits and acquisitions.
Speaker Change: Well, we really don't want to talk much from a competitive perspective about our desires for growth and investing and that type of thing. I would say, though, that we're still at a point where we're executing.
Speaker Change: to finish the strategy we put in place to deliver the business.
Speaker Change: and as you could tell from the prioritization I gave you a few moments ago on our cache uses. Acquisitions is the...
Speaker Change: The bottom of that list of four different uses of the cache, so I don't want to get too far ahead of ourselves on that right now.
Okay, I appreciate it. Thanks so much. You sure thing.
Speaker Change: And your next question comes from the line of John Mason with Ages Companies. John , please go ahead
Thanks for taking my question.
Speaker Change: Sure. Just looking at your volumes across for this quarter, I noticed that you guys saw a real tip uptick in the Illinois Basin. And so I guess just a couple questions. One, do you expect that uptick in volume to persist? And then two, you know, I think at these met index prices.
Speaker Change: You know, it's pretty economical for I think a lot of producers on the cost curve. Do you anticipate any of your lessies on the med side to reduce production at these levels over time or do you think that a persist? So I guess a question on sort of Illinois basin specifically. And then the impact of the meant index pricing on the volumes for your net producers. You know, I don't know. I don't know. I don't know. I don't know.
Speaker Change: Right. So, first of all, let me say that, as Tiffany mentioned at the outset, we remember we do not comment on specific operators, and so Illinois Basin is, in fact, one operator for us.
Speaker Change: So hopefully that helps your question there with that. And what was your second question again?
Speaker Change: So, you know, I think ill and noise, you know, primarily thermal, but on the met side, you know, the index pricing, obviously, the Q1 sort of the first quarter that you're seeing is fully reflected.
Speaker Change: Met coal producers to reduce production given that, I think this pricing is pretty un-economic for a lot of producers across the cost curve.
Speaker Change: We think you're right, we do believe that you're correct and that...
Speaker Change: and prices today are, you know, at or below marginal cost of production for many operators. And we do have operators we believe, although we're not necessarily privy to their cost structure. We don't have the right to see that, so to speak, but we do believe that we do have operators that are right there at that break even, maybe right before. Or it would not surprise us if there were.
Speaker Change: You know, idlings of production, but we, you know, we have nothing we can point to right now that says we're going to have a material change in our volumes as a result of that.
Speaker Change: But as you could tell from our prepared remarks, that's what we want to make sure everybody, all of you are aware of, is that we're sensitive to the price levels that exist in the space right now.
Speaker Change: Yeah, sounds good. Thanks so much. You bet. I will just say this, one of the things that we spend a lot of time doing.
Speaker Change: around here and have for a number of years is trying to think of bad things that can happen to our business.
Speaker Change: and you identified one of them that we regularly consider and we run stress tests on. And it's a wise question to jazz.
Speaker Change: And your next question comes from the line of Umang Kamaria. Please go ahead.
[inaudible]
Umang Kamarya: Hi, thanks for taking my question. So basically my question was supposed to be the similar to the previous one, but just a couple of things. So the first thing is that, you know, and previously M&A has been pretty strong for NRC, but I just want to...
Umang Kamarya: Care of sense of whether or not this is going to be a team.
Umang Kamarya: and also with regards to the new administration, there seems to be more support for the Metcalf going forward. And I was just wondering that have you heard of any talk with regards to that with the other partners, whether they're actually looking for more Metcalf sourcing with regards to up for throughout the supply chain?
Yeah, pretty much those two things.
Could you repeat your first question again please?
Umang Kamarya: You can just record the first question, it wasn't about M&A, but I think you covered it, all right. So could you just answer the second question please?
Umang Kamarya: I would say that we do monitor legislative and executive orders, legislative developments and executive orders fairly closely to the extent they expect impact our space.
Umang Kamarya: and we have not identified anything that we think will materially impact our business per say. We can't make forecast as far as...
What's going to happen on the regulatory front?
But, you know, we've seen...
various administrations come and go over the life of NRP.
Umang Kamarya: and we frankly haven't seen a dramatic impact just for example over the last decade through two-plus administrations that we've we've we've we don't know exactly what impact is going to have on us and we're not changing our business plans because of it.
Thank you so much.
Yeah, you bet.
There are no further questions at this time.
Speaker Change: That concludes our question and answer session. I will now hand it back over to Craig Nunez for closing remarks.
Craig Nunez: Thank you operator and thank you everyone for joining us today and for your support of us.
Craig Nunez: We're near in the end of a very long journey to conclude the strategy that we've put in place back in 2015 and we couldn't have done what we've done so far without your support.
Craig Nunez: are certainly headwinds at the moment, but I can honestly say that despite the outlook for our three key commodities being...
Craig Nunez: Probably the worst it's been in my tenure at NRP. The outlook from the perspective of an equity holder is certainly brighter than it's been over the last decade. So with that, thank you again and look forward to speaking to you soon. Good day.
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