Q3 2025 Natural Resource Partners LP Earnings Call
Thank you for standing by. My name is Tina and I will be your conference operator today.
At this time, I would like to welcome everyone to the Natural Resource Partners, LP third quarter, 2025 earnings call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answers. Question to ask a question, simply press star, follow star 1 on your telephone keypad to withdraw, your question, press star 1 again, thank you. It is now my pleasure to turn the call over to Tiffany Samus investor relations. Please go ahead.
Thank you. Good morning and welcome to the Natural Resource Partners. Third quarter, 2025 conference call. Today's call is being webcast and a replay will be available on our website.
Joining me today are Craig Nunes president and Chief Operating Officer, Chris isolus Chief Financial Officer and Kevin Craig Executive Vice President.
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.
These risks are discussed in nrp's 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 reconciliations to the most directly comparable, gaap measures are included in our third 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 Cola C or detailed Market fundamentals.
Now, I would like to turn the call over to Craig Nunes, our president and Chief Operating Officer.
Thanks Tiffany and good morning everyone.
NRP generated 42 million dollars of free cash flow in the third quarter of 2025 and 190 million dollars of free cash flow over the last 12 months.
we continue to generate substantial free cash flow despite significant headwinds for all 3 of our key Commodities metallurgical, coal, thermal coal and so Dash
Metallurgical, coal, markets, are challenged by slowing Global growth and soft steel demand.
Thermal coal markets are struggling with muted, demand caused by mild weather cheap, natural, gas, slowing Global growth and renewable energy adoption.
While the prospects for a more accommodating regulatory environment and increased electricity demand from data centers have increased Market optimism for thermal coal. We have not yet seen any material support for prices or demand.
While we acknowledge that these factors offer the potential for a more bullish long-term Outlook, we will continue to manage the partnership in accordance with the thesis that North American thermal coal remains in long-term secular decline until we see evidence to the contract. Contrary
As we've seen previously, we believe, as we've said previously, We Believe most coal operators are struggling to make money with most producing a razor thin margins and a growing number of operating at a loss.
We are seeing this play out in the announced results of publicly traded companies and recent bankruptcies of several smaller producers.
While we have not identified a catalyst to turn the market around, we continue to believe that the vast majority of our less seas are in better Financial shape than in previous downturns.
Improving capital structure and conservative management. Philosophy position us. Well for navigating a very difficult cold Market,
The soda, ash Market remains oversupplied due to capacity additions and slowing Global growth.
International prices are below cash production costs for most producers.
While we were early to share publicly, our concerns regarding the potential for the supply, demand imbalances. Now, plaguing the market, the depth and potential. Duration of the current downturn is more significant than we initially expected.
We are in a generational bare market for soda ash and there will be more pain to Bare before the situation improves.
If there is a silver lining to the cloud hanging over the sash Market, it is that this Dynamic is unsustainable in the long term. We expect producers will rationalize Supply at some point but we don't know when or how that will occur.
Rebalancing supply. And demand will likely take several years before prices return to levels. Enjoy historically.
As 1 of the world's lowest cost producers shisha Jam, Wyoming continues to navigate this downturn. Well,
In addition to aggressively managing costs and inventories shisha Jam is maintaining its focus on safety and system. Integrity 2 areas that are sometimes overlooked during periods of challenging Financial results.
Our so, Dash investment is a long-term asset with durable, competitive advantages that will produce an essential global commodity for many years in the future. We are quite pleased that our managing Partners committed to maintaining the long-term Integrity of our shared asset. Even when near-term financial performance is down
we did not receive a distribution from sisu Jam this quarter after receiving 8 million in distributions, during the first half of the year,
While we expect shisha Jam, Wyoming to remain profitable through the downturn. We do not expect it to resume distributions for the foreseeable future with cash, retained used for investments in safety and system integrity.
The carbon neutral industry continues to struggle.
Oxy notified US during the quarter that it was dropping at subsurface. CO2, sequestration, lease on 65,000, Acres of Force Space. We own in pulk County, Texas.
You'll recall that Exxon dropped its CO2 sequestration. Lease on 75,000 Acres, we own in Baldwin County Alabama last year as of now. None of our 3 and a half million Acres of CO2 sequestration. Pore space is under lease.
You've heard me describe these sequestration rights as out of the money. Call options on greatness. They cost us nothing to hold. They never expire. And we benefit if the market for CO2, sequestration goes up.
I do not believe our leases.
Were dropped due to any problems associated with our specific acreage on the contrary. I think the location's lease to oxy and Exxon are some of the highest quality. CO2, poor space in the Gulf Coast.
The entire CO2 sequestration industry Remains burdened by high capital and operating costs insufficient and inadequate revenue streams and the lack of a consistent regulatory framework.
These factors have created formidable economic barriers. That operators are either unable or unwilling to overcome.
our call options on sequestration, pore space will remain out of the money until and unless these industry challenges are resolved,
In conclusion Cole and so Dash prices are down and we do not see near-term catalysts for Market Improvement, our coalesces are operating at or near their cost of production and our soda. Ash investment is experiencing the lowest International sales prices in decades. Despite this NRP continues to generate, robust free, cash flow and make progress toward our goal of retiring all outstanding debts.
Over the past 12 months, we have retired nearly 130 million dollars of debt with only 70 million dollars of debt. Remaining, as of the end of the quarter, we continue to believe that we will be in a position to increase unit holder distributions in August. However, I caution that the longer we slog through the depths of bare markets for all, 3 of our key Commodities, the greater, the likelihood that some event occurs, that pushes that timing back.
Rest assured, however, that we will continue to manage the partnership with a conservative mindset in order to protect your investment and be best prepared for negative events that may arise.
And with that, I'll turn it over to Chris to cover the financials.
Thank you, Craig.
in the third quarter of 2025 NRP generated, 31 million of net income,
41 million of operating cash flow and 42 million of free cash flow.
A free cash flow.
When compared to the prior year, in the third quarter, our mineral rights segment and income remain flat, while operating free cash flow each decreased by $9 million.
increases were primarily due to weaker metallurgical, coal markets, resulting in lower sales prices,
regarding our third quarter, 2025 met thermal coal royalty, mix
Metallurgical coal, made out of approximately, 70% of our coal, royalty, revenues, and 50% of our coal, royalty sales volumes.
For our. So for our sod Dash segment, net income decreased by 11 million compared to the prior year of the recorder. While operating in free cash flow each decreased by 6 million.
These decreases were primarily due to lower international sales prices driven by weakened glass demand from the construction and automobile markets, combined with new natural soda ash supply from China.
we did not receive a distribution from Susan, Wyoming in the third quarter of 2025
and do not expect distributions from Susan, Wyoming to resume until sued Dash. The man rebounds or there is a more significant Supply response this week in Market. Most likely from higher cost synthetic production.
Moving to our corporate and financing segment. Q3 2025, net income, improved, 3 million, and operating cash flow and free cash flow. Each improved 2 million. As compared to the prior year period, due to significantly less debt outstanding resulting in lower interest costs and less C less cash paper interest.
We use the free cash flow generated from our business segments to repay 32 million of debt during a third quarter, over 70 million through the first 9 months of 2025. And we remain on track to accomplish our deliberating goals next year.
Regarding our quarterly distributions in August of 2025, we paid the second quarter distribution of 75 cents per common unit. And today we announced the third quarter, 2025 distribution of 75 cents for common units that would that will be paid later this month.
And with that, I'll turn the call back over to our operator for questions.
as a reminder to ask a question, simply
Click on the keypad again, that is star 1, to ask a question, and we'll pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Dan Adler. Please go ahead.
Hi, this is Dan Adler. Thank you for all you're doing for shareholders. My my question.
revolves around leasing for
uh, lithium Mining and the Smackover region, and if you could provide any
Information on.
Um, acreage that has been leased or potential for revenue from that leasing. Thank you.
Thank you. Thank you, for your call, Dan, and for your, for your question. Um, yes. Uh, we, we are active in leasing acreage in the Smackover formation for lithium production to, uh, multiple lessee's. Uh, we don't comment on terms of leases and, and that type of thing. I will say that the activity and the area has been, uh, as varied from robust to, to lukewarm at various various, uh, periods over the last several years. Um, but yes, we're active in the in the Smackover in Southern Arkansas and, and in Northeast Texas.
Thank you, you bet.
Our next question comes from the line of David spy with net capital. Please go ahead.
Hi, good morning.
Um, just first, first, a bit of a housekeeping question, just, um, given the passive nature of the, you know, partnership. I'm just, um, the operating and maintenance expense. Um, what goes into those expenses and is there any ability given the environment to reduce that expense line?
Sure, um, you know, salaries and compensation is a big part of that. We also have a variety of other General Corporate costs insurance.
um,
legal accounting. Um,
so, so there's a variety of of
General, General, Corporate type of of costs that that flow in there.
We have a those are those aren't in general and and administrative expenses, I'm talking about the operating and maintenance expenses.
Sure. We we also have those same types of expenses in the operating expense for the mineral rights segment.
Expenses as well. We have we have some some royalty costs as well.
That go in there.
And we have a zero-based budgeting approach. So that every year we, um, the goal is to make the total cost as low as possible, rather than simply look at increases of costs from year to year. So, um, I, I won't say that we don't sharpen our pencil whenever times are lean because we do. But the reality is we sharpen our pencil all the time, and we have long-term cost management that we follow.
Got it. And then just the general question regarding the company's mineral rights um, as the majority of the company's mineral rights specific to certain minerals, or are they General subsurface rights where, you know, we're all the opportunities to get this done, anything that comes out of the ground, there's some better insight, there would be and helpful.
It it is generally for specific minerals.
Understood and then. So with that um are there any opportunities given you know, the growing demand of interest in that gas? Are there any additional production opportunities that might, you know, be rising that is in previously. When the company the partnership had been previously thought existed, um, over the past year,
I'm not sure, I understand your question. You referred uh maybe some higher cost there. There was some higher cost natural gas plays with the company as mineral rights on that. You know, in the past few years, uh didn't seem like a possibility for production. We're now, you know, these plays are you know, now in the money and there's increased interest uh producers
In other words, call options moving in the money is what you're describing. Yes. So yeah, exactly. Um, the vast majority of our oil and gas mineral rights are in the hanesville in North Central. And in West, uh, Central North Central, north northwest, Louisiana, and that's a pretty active Basin right now. And um, so I would say drilling has picked up a bit in the hanesville and the extent that it does, we, we benefit from that, I will say that. Um, while uh, I will say that those numbers are those those production amounts and those uh, revenues that we can receive from oil and gas minerals, um, they're not as that material to the partnership.
Got it, and then just regarding Capital allocation um you know, looking at.
the cash on hand and the and the debt outstanding seems like
You know 1, maybe 2 quarters away from being in a net cash position. Uh, is that the right way to look at it?
You're looking at it correctly as you as we've said, you know, we believe that we will be in a position where, uh, we will have the majority of the vast majority of our remaining debt paid down and be able to increase distributions in the third quarter next year. Um,
That's the plan. And that that's the forecast. The issue comes in with um, as we continue in this difficult Market are there going to be things that will happen that will change that. Um, we don't know that there will be, but we're just warning everybody that there could be
Got it. Okay, I understood. I appreciate it.
Our next question comes from the line of Ken at. Please go ahead.
hi, Penny acraman uh, question again regarding Capital allocation
I mean you guys retired at the warrants, a retired substantial amount of that, almost all of it as was just discussed what um
What kind of would be the criteria to to start unit repurchases? Or I mean, what are the thoughts surrounding that? I know? This isn't the first time this has been asked but just considering you're getting
I mean, is there anything?
That would inspire you guys to repurchase your units. Or is there anything prohibited? And I know there's 1 large owner, um, of the partnership. Just didn't know if unit repurchases or even possible.
So, so let's think of it. Um, instead of thinking of be about being in a, net cash position, let's think about how we at the company, think about our balance sheet, uh, and and what the signals we look for to being able to, to do to deploy cash in, in some way, other than just paying down debt. Um, we're looking to establish what we Define as, as an NRP Fortress, balance sheet. And to us, that means 2 things, it means number 1. No permanent debt in the capital structure and permanent debt. We Define as debt that we do not have the ability or intent to repay prior to maturity with internally generated cash.
Um, and that also means at the same time that we'll have a, our revolving credit facility in place. Once we're in that position, we feel that that we have, what we believe is a fortress balance sheet, and then we can feel free to allocate Capital as as we see best and what are our priorities for allocating Capital. Number 1 unit holder distributions, number 2, uh unit repurchases and material discounts to our estimates of intrinsic value. And number 3, if they come along opportunistic, Acquisitions where we can acquire assets that that are within our circle of competence
at what we consider to be bargain prices.
And uh there are no um impediments to us being able to buy back units. Uh other than can we acquire them for a price that we think is a sufficient enough discount to our estimates of intrinsic, value to, to want to do it.
Got it. Nope, makes makes total sense and just 1 follow-up. I mean, can you give any color around
What you can consider intrinsic, value. I mean, just what?
I mean, broad question but just what, what would the company consider intrinsic value, just to get a decent sense of what? What would kind of qualify for unit repurchases and what would in
No, we're not going to guide on that. Um, sorry about that. I would encourage you to go back and read, uh, our unit holder letters, um, that are published each spring with the annual report with the 10K, especially this this most recent 1. Um, but each 1 of them talks about how we, um, how we think in terms of intrinsic value and the process, we use to Value, um, uh, the company, um, because intrinsic value per unit is a very important component of, of all of our management decisions that we make. And so we've, we've explained in writing how we go about doing that. We just don't tell you exactly what our assumptions are. And what the the numbers are that we think are are in place.
Fair enough. Thank you for. Thank you for the answers.
Sure thing.
Thank you.
Hey everyone. Uh, congrats on the progress, especially with The Debt, Pay down to 70 million. Um, it's been quite the journey over the last 10 years. Thanks for the comments on thermal cold. I had a question on that. It seems that every day we're hearing more about data center capex, being at just very extreme levels. I understand, you're not seeing that demand come through to your thermal cool asset yet. But if that does next year, um, is their infrastructure and capacity in place for
Producers on your thermal coal properties to scale up, or would that require a lot?
Of capex on their side. Thank you.
Good question and I don't know that we completely know the answer to your question because, uh, as you know, our operators are our operators, we don't operate, and they don't necessarily share, uh, everything with us but I can give you my my educated guess on it, my best judgment. I do believe that if the increase power demand from data centers, that is forecasted, uh, to result from all of the capex, that's now planned over the next 5, ten years. I do believe there will have to be material amounts of capital invested in the thermal coal infrastructure. Uh, both debris new, uh, bring new production online and to process it and transport it. Uh, I don't know what those dollars are and I don't know, uh, to the extent that that Capital would involve Minds that are on in RP or on other acreage uh elsewhere in in North America.
Does that help?
Yep, absolutely. Thank you.
Thank you.
I'm with no further questions in queue. I will turn the call back over to Craig. Nunes for closing remarks.
Thank you, operator. And thank you everyone. For um joining our call today. Thank you for your questions and uh you know as I look over the list of participants here uh the the vast majority of you have have been with us for quite a while so thank you for your support over the over the years and we look forward to talking to you next quarter. Take care.
Thank you again for joining us today. This does conclude today's presentation. You may now disconnect