Natural Resource Partners L.P. Reports Third Quarter Results

HOUSTON, Nov. 3, 2010 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP) today reported that for the second consecutive quarter, improved coal markets led to record revenues and higher third quarter 2010 results. Distributable cash flow, a non-GAAP measure, increased 80% over the third quarter of 2009 to $54.2 million. Net income attributable to the limited partners of $39.4 million increased 56% over the same period last year. Net income per unit improved 42% to $0.51 from the $0.36 per unit reported for the third quarter 2009.  Excluding the impact of the elimination of the incentive distribution rights, adjusted net income per unit was $0.36 in the third quarter 2010, or flat with the same period in 2009.  Reconciliations of distributable cash flow to GAAP and adjusted net income per unit are provided in the tables at the end of the release.

"NRP's lessees have continued to receive much higher prices for coal leading to another great quarter," said Nick Carter, President and Chief Operating Officer.  "The gradual improvements in the economy evidenced by improving commercial/industrial electricity usage, coupled with the continuing strength of the steel sector, led to our record revenue and an improving outlook."

Revenues

Third Quarter

NRP reported record quarterly revenues of $80.8 million for the third quarter 2010, a 26% rise over the third quarter 2009 due to increases in both the production of and realized prices for coal.  Production in the third quarter 2010 was up 10% to 12.4 million tons and the average coal royalty revenue per ton increased 11% over the same quarter last year to $4.86.  NRP's lessees realized higher prices for both steam and metallurgical coal in the third quarter.

Revenues other than coal royalties increased 41%, or approximately $6.0 million, from the third quarter 2009 mainly due to:

• increased throughput on the coal processing and transportation assets generating a $2.1 million increase in fees; and
• a $3.1 million quarterly non-recoupable minimum recognized as income for each quarter of 2010, which after this year, will only be recognized as revenues when recouped through production;

Nine Months

The improvements seen in the third quarter are reflected in the nine month numbers.  The increases in realized prices for coal more than offset the slight decline in production for the nine month period.  Metallurgical coal accounted for 33% of NRP's production and 39% of its coal royalty revenues for the first nine months of 2010.  

Operating Expenses

Third Quarter

NRP incurred total operating costs and expenses of $30.4 million in the third quarter of 2010, up by $7.8 million mainly due to a $3.2 million increase in depreciation, depletion and amortization and a $4.2 million increase in general and administrative expenses. The $4.2 million increase in third quarter 2010 general and administrative expenses over third quarter 2009 included $2.7 million for increased accruals on the long term incentive plan associated with the increase in NRP's unit price and additional expenses related to the venture with International Paper.

Nine Months

Operating costs for the first nine months of 2010 increased by $941 thousand due to increased general and administrative expenses offset by decreased depreciation, depletion and amortization due to lower production in the nine month period of 2010 versus the same period last year.

Net income

Third Quarter

Net income to the limited partners increased $14.2 million to $39.4 in the third quarter 2010 over the third quarter 2009 net income of $25.2 million. Nearly 65% of this increase was associated with increased revenues while $5.0 million was associated with the elimination of the incentive distribution rights announced by NRP in late September 2010.  Net income per unit increased to $0.51 per unit even though there was a 12% increase in the average number of units outstanding in the third quarter 2010 versus the same period last year.  Adjusting for the elimination of the incentive distribution rights, the net income per unit remained flat with that of the third quarter 2009 at $0.36 per unit.

Nine Months

Net income to the limited partners increased $32.7 million, or 63%, for the first nine months of 2010 when compared to the same period in 2009 due to improved revenues.  Net income per unit rose by $0.37 per unit, to $1.14 per unit, despite a 10% increase in the number of units outstanding during the respective time periods.  Excluding the impact of the elimination of incentive distribution rights, adjusted net income per unit rose by $0.10 per unit.

Distributable cash flow

Third Quarter

Distributable cash flow rose $24.2 million, or 80%, to $54.2 million over the second quarter of 2009, mainly due to the improved revenues of $16.8 million and a $6.6 million increase in receipts of minimum royalties period over period.

Nine Months

Distributable cash flow increased $37.2 million, or 32% during the nine months ended September 30, 2010 versus the same period last year predominantly due to improved revenues.  

Third Quarter 2010 compared to Second Quarter 2010

Revenues

Total revenues for the third quarter 2010 increased modestly over the second quarter 2010, to a record $80.8 million, mainly due to increased shipments of coal offset somewhat by a slight decrease in the realized coal royalty revenue per ton.  Coal production increased 5% while average coal royalty revenue per ton decreased 1% to $4.86.  NRP experienced increased production in all regions except Northern and Southern Appalachia.  The largest increase occurred in the Illinois Basin where, for the second consecutive quarter, production increased approximately 600 thousand tons.  The increase in the Illinois Basin was due to increased shipments of coal at both the Williamson and Macoupin properties.  Revenues other than coal royalty decreased $1.1 million primarily due to $1.9 million received in the second quarter from a right of way easement offset by minor improvements across several categories.  

Operating Expenses

Operating expenses for the third quarter of 2010 increased $2.8 million over the second quarter mainly due to general and administrative expenses.  General and administrative costs for the third quarter increased $2.0 million which included an increase in the long-term incentive plan accrual for both additional grants for new employees and the additional accrual associated with a 13% increase in NRP's unit price during the third quarter.

Net income

Net income to the limited partners increased $11.3 million in the third quarter to $39.4 million, mainly due to the elimination of the incentive distribution rights in the third quarter.  Excluding the impact of the elimination of the incentive distribution rights, the net income to the limited partners would have been $26.6 million or $0.36 per unit compared to $28.1 million or $0.38 per unit in the second quarter 2010.

Distributable cash flow

Distributable cash flow decreased $9.6 million, or 15% to $54.2 million from last quarter due solely to a scheduled interest payment that was made on NRP's senior notes that offset the improvements in revenue.

Current Market

The coal markets continue to improve.  Metallurgical coal prices increased substantially in the first half of the year and have now stabilized at prices approximately twice that of a year ago. In addition, we have seen record coal burns at the utilities, causing stockpiles to be significantly lower than six to nine months ago.  The weather over the last nine months in the coal consuming region, coupled with steadily improving commercial/industrial usage, has contributed significantly to the lowering of these stockpiles.  Demand for steam coal and for metallurgical coal has improved significantly over the last year.

Guidance – Update

NRP updated its guidance at the end of the second quarter both increasing and narrowing the ranges.  In the third quarter, NRP has continued to see improvements in prices and is now anticipating meeting or exceeding the upper limits of all the ranges except production which is anticipated to be near the middle of the previously announced range.  In addition, net income per unit is now anticipated to be in a range of $1.40 to $1.50 per unit, an increase of $0.30 to $0.40 per unit, of which approximately $0.15 to $0.20 is due to the elimination of the incentive distribution rights that occurred during the third quarter.

Acquisitions and Liquidity

In the third quarter, NRP took a major step in simplifying its corporate structure.  On September 20, NRP issued 32 million units to the holders of the incentive distribution rights in exchange for the permanent retirement of those rights.  This transaction not only simplifies NRP's structure but it also lowers NRP's cost of capital, which is critical to completion of acquisitions and growing the partnership's cash flows and distributions.

Early in the fourth quarter, NRP completed the third acquisition of the coal reserves associated with the Deer Run mine in the Illinois Basin.  This property, currently under development, will increase coal royalty production for NRP in 2011 and dramatically increase production in 2012 as the longwall production commences.

"With the improvements in the coal markets leading to increased revenues, the cash balance of $72.2 million and the $261.0 million that we had available on our credit facility at the end of the quarter, NRP has the capital available to fund its committed capital obligations and pursue additional acquisitions," said Dwight Dunlap, Chief Financial Officer.  "Our capital structure has been strengthened throughout the year due to our improved financial performance, our equity issuance at the beginning of the second quarter as well as the elimination of the incentive distribution rights during the third quarter.  The elimination of the incentive distribution rights will enhance our ability to continue to make accretive acquisitions and grow our distribution."

Distributions

As reported on October 22, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.54 per unit, unchanged from the second quarter 2010.

Company Profile

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

For additional information, please contact Kathy H. Roberts at 713-751-7555 or [email protected].  Further information about NRP is available on the partnership's website at http://www.nrplp.com.

Disclosure of Non-GAAP Financial Measures

Distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for scheduled principal payments on the senior notes.  Distributable cash flow is a "non-GAAP financial measure" that is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Distributable cash flow is a significant liquidity metric that is an indicator of NRP's ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to its partners. Distributable cash flow is also the quantitative standard used throughout the investment community with respect to publicly traded partnerships. Distributable cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. A reconciliation of distributable cash flow to net cash provided by operating activities is included in the tables attached to this release.  Distributable cash flow may not be calculated the same for NRP as other companies.

Forward-Looking Statements

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission.  Such statements include the current coal market conditions and borrowing capacity.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements.  These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances.  Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership.  These risks include, but are not limited to, decreases in demand for coal; changes in operating conditions and costs; production cuts by our lessees; commodity prices; unanticipated geologic problems; changes in the legislative or regulatory environment and other factors detailed in Natural Resource Partners' Securities and Exchange Commission filings.  Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

-Financial statements follow-

SOURCE Natural Resource Partners L.P.

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