Profitable Production

Paul S. Forward, CFA
Stifel Nicolaus
443-224-1379
[email protected]

Natural Resource Partners (NRP) reported earnings in Q4’13 were $0.42/share, above our prior estimate of $0.29/share. Earnings before interest, taxes, depreciation and amortization of $81.4 million were also above our estimate of $64.1 million. The beat was driven by higher-than-expected revenues from the OCI soda ash joint venture, reported under equity and other unconsolidated investments as well as under override royalties and other revenue.

Oil and gas royalties also beat our expectations in Q4 at $7.3 million vs. our estimate of $6.0 million on a faster than expected ramp in production. Q4 coal royalty revenue of $47.7 million was slightly higher than our $42.2 million estimate, while lessees’ 4Q’13 coal production was 11.1 million tons vs. our estimate of 12.1 million tons.

We are raising our 2014 EBITDA estimate from $255 million to $267 million (Street: $271 million). Our updated earnings per unit estimate is $1.27/unit vs. $1.18/unit previously (Street: $1.22/unit), bringing this estimate toward the high end of NRP’s 2014 guidance range of $1.10-$1.30/unit. Significant changes to our model assumptions include:

(1) Higher estimates for equity and other unconsolidated investments, as well as override royalties and other revenue, from a total of $49 million to $57 million for the full-year 2014, to reflect our higher estimates for revenue from the OCI soda ash joint venture. Reported revenues are separate from cash flows received on the preferred stock of OCI held by NRP, which NRP said that it expected will total $42.5 million in 2014.

(2) Higher coal royalty revenues in the Northern and Central Appalachian regions, tied to recent improvements in thermal coal prices, from $183 million to $188 million for the full-year 2014. In its Jan. 9 press release announcing the distribution cut, NRP set a volume guidance range for 2014 from 43 million-50 million tons for its lessees.