In President Barack Obama’s budget proposal for the Fiscal Year 2013 are some proposals that would hurt coal reserve landholders, said Natural Resource Partners LP in a Sept. 11 filing at the SEC.
Among the changes recommended in the budget proposal is the elimination of certain key U.S. federal income tax preferences relating to coal exploration and development, NRP noted. The budget proposal would:
- eliminate current deductions and 60-month amortization for exploration and development costs relating to coal and other hard mineral fossil fuels;
- repeal the percentage depletion allowance with respect to coal properties;
- repeal capital gains treatment of coal and lignite royalties; and
- exclude from the definition of domestic production gross receipts all gross receipts derived from the sale, exchange, or other disposition of coal, other hard mineral fossil fuels, or primary products thereof.
“The passage of any legislation as a result of the Budget Proposal or any other similar changes in U.S. federal income tax laws could eliminate certain tax deductions that are currently available to us, and any such change could increase the taxable income allocation to our unitholders and negatively impact the value of an investment in our units,” NRP reported.
The Sept. 11 filing is a first amendment to a prospectus related to a $500m maximum offering price of common units representing limited partner interests in NRP to be offered on a primary basis by NRP, and up to 16,646,072 common units representing limited partner interests in NRP to be offered on a secondary basis by the “selling unitholder.” This is a “shelf” registration, so these units could be offered to the public at future points.
The selling unitholder, by the way, is Adena Minerals LLC, which is controlled by coal operator Chris Cline. Cline over a period of years obtained a major stake in NRP through a series of deals to sell to NRP coal reserves and then lease them back for his own production operations.
NRP’s common units are traded on the New York Stock Exchange under the symbol NRP. On Sept. 10, the last reported sales price of its common units was $21.64 per common unit.
NRP is a limited partnership formed in April 2002 and completed an initial public offering in October 2002. It engages principally in the business of owning, managing and leasing mineral properties in the U.S. It owns coal reserves in the three major U.S. coal-producing regions: Appalachia, the Illinois Basin and the Western United States, as well as lignite reserves in the Gulf Coast region. As of Dec. 31, 2011, it owned or controlled about 2.3 billion tons of proven and probable coal reserves. In 2011, its lessees produced 49.2 million tons of coal from its properties and its coal royalty revenues were $279.2m.