Determined Deliveries

Stifel Nicolaus

443-224-1379

[email protected]

[On February 14] Natural Resource Partners (NRP) reported 4Q11 EPU (earnings per unit) excluding items of $0.52 per unit, versus our estimate of $0.49 and the Street consensus of $0.47. NRP’s 4Q11 results were impacted by a non-cash impairment charge of $70.4 million recorded for the partnership’s Gatling Ohio property, which was idled by the mine operator due to adverse geologic conditions.

Production from the mine is not expected in the near-term future. This mine accounted for 1% of NRP’s 2011 revenues and is not included in NRP’s 2012 guidance, which it issued in the release. NRP’s 4Q11 EPU including this charge was a loss of $0.13 per unit.

Production in Northern Appalachia was ahead of our estimates, but lower in Central Appalachia, the Illinois Basin, and Northern Powder River Basin. Revenues other than coal royalties of $30.0 million were well ahead of our $21.9 million estimate and more than offset the coal-revenues miss. In 4Q11, NRP invested $12.8 million in oil and gas mineral acreage and further payments on construction related to aggregates. NRP ended 2011 with $215 million cash on its balance sheet.

The Street consensus for 2012 is $1.90. NRP said it expects 2012 coal production in the range of 52–58 mt (vs. our estimate of 57.5 mt). Using midpoints, NRP’s guidance reflects a 10% increase in production over 2011 levels, but approximately even coal royalty revenues. This guidance reflects the softening in prices for both thermal and metallurgical coal and associated lower average realized royalties per ton. We expect NRP’s Appalachian volumes will be weaker in 2012, offset by stronger Illinois Basin volumes due to the startup of the Deer Run longwall, which is expected to occur in August 2012.