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Coal: Energetic Results

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Daniel W. Scott
Cowen and Company
[email protected]

Natural Resource Partners (NRP) is a master limited partnership headquartered in Houston, with its operations headquarters in Huntington, W. Va. NRP is principally engaged in the business of owning and managing mineral reserve properties. NRP primarily owns coal, aggregate, and oil & gas reserves across the United States that generate royalty income for the partnership.

NRP reported Q2’14 adjusted EBITDA ahead of estimates driven by better-than-expected Appalachian royalties and oil & gas operation performance. While coal revenues are projected to be lower than initial expectations, the fruits of its diversification efforts are materializing as other commodities offset the decline and led NRP to reiterate full-year guidance.

NRP reported Q2’14 adjusted EBITDA of $77 million, ahead of our $69 million estimate and consensus of $68 million. Higher-than-expected Appalachian royalty rates, driven by a rebound in Northern Appalachian ($1.07/ton vs. $0.80 estimate) and Central Appalachian ($4.50/ton vs. $4.30) and higher than expected oil & gas performance ($17.8 million vs. $10 million), somewhat offset by higher general & administrative expenses, accounted for the beat.

Coal-related revenues accounted for 61% of total Q2’14 revenues, down from 78% and 65% in Q2’13 and Q1’14, respectively. Thermal cuts are being reflected as met coal comprised 36% of coal production and 43% of coal royalties versus 28% and 40% in Q2’13 and 28% and 39% in Q1’14.

We acknowledge that diversification efforts are bearing fruit and will revisit our distribution assessment as this piece of the pie continues to grow. We have updated 2014 and 2015 estimates for lower coal volumes, offset by higher oil & gas revenues.

Paul S. Forward, CFA
Stifel Financial
[email protected]

This morning (Aug. 19), Natural Resource Partners announced that it has entered into a definitive agreement to acquire the privately held limited partnership VantaCore Partners L.P., for $205 million, with an anticipated closing date in Q4’14. NRP plans to fund the purchase through issuance of $36 million of common units to certain sellers, with the balance financed with the firm’s revolving credit facility.

VantaCore Partners, a construction materials firm with approximately 230 employees, operates three hard rock quarries, six sand and gravel plants, two asphalt plants, and a marine terminal across Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana, with a customer base that includes some gas and oil producers in the Marcellus and Utica shale regions.

VantaCore will be operated as a wholly-owned subsidiary of NRP by current CEO Colin Oerton and COO Perry Donahoo.

NRP expects the acquisition to be immediately accretive to earnings and cash flow, providing an additional $25 million of EBITDA generation over the next 12 months compared to our current 2014 EBITDA estimate of $290 million (not reflecting assumed contribution from VantaCore).

We view this acquisition as in line with the firm’s focus on diversifying its revenue generation in response to continued declines in Appalachian coal production.


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