Natural Resource Partners LP (NYSE: NRP), a major coal landholding company, on Nov. 5 reported revenues of $94.2m, and net income per unit of $0.48 for the third quarter of 2012.
“In spite of a weak coal market, compared to the second quarter 2012, production from NRP’s lessees increased in the third quarter by 11% and coal royalty revenues by 12%, as we exceeded our expectations,” said Nick Carter, President and COO of the company.
Total revenues for the third quarter of $94.2m decreased 9%, or $9m from the third quarter 2011 mainly due to decreases in coal royalty revenue and oil and gas royalties. Coal royalty revenue decreased $4.7m, while production rose modestly from the third quarter 2011. This decline in revenues reflects the $0.44 per ton decrease realized in the combined average royalty revenue per ton. Most of the change relates to reductions in both price and production in Central Appalachia, where production declined 816,000 tons and prices realized per ton decreased $0.85. These declines were partially offset by the significant increase in both production and price in Southern Appalachia, where sales from the Oak Grove metallurgical coal mine of Cliffs Natural Resources resumed after damage to the preparation plant last year due to a tornado that shut the plant for several months.
Total revenues for the first nine months decreased 3% over the 2011 period to $276.7m. While coal royalty revenues declined about 9%, or $18.5m, due to $0.54 per ton lower coal royalty realizations; other revenues increased $10.7m, which helped partially offset that decline. The lower realizations per ton resulted from lower prices received in Appalachia on both thermal and metallurgical coal, as well as new production in Northern Appalachia from an older lease that has a much lower royalty rate. Metallurgical coal accounted for 33% of NRP’s production and 44% of its coal royalty revenues for the first nine months of 2012 compared to 35% of production and 45% of coal royalty revenues in 2011.
Net income to the limited partners totaled $51m compared to the loss of $29.9m shown in the third quarter 2011, which included an impairment. Excluding the impairment, net income to the limited partners was down $8.2m from the 2011 third quarter, primarily due to lower coal royalty revenues.
Net income attributable to the limited partners for the first nine months of 2012 was $150.2m, or $1.42 per unit, compared with $0.66 per unit reported in the third quarter 2011, or $1.50 per unit excluding the impairment.
NRP hopes the coal market is at its bottom
“Both the metallurgical and thermal coal markets appear to have hit bottom,” Carter said. “Margins are slim or non-existent for much of Central Appalachian thermal production, and metallurgical coal demand seems to be increasing globally. That having been said, we do not expect a quick recovery of either market and would expect that metallurgical coal demand will increase slowly over the next 12 months as steel production grows globally and restocking occurs.”
He added: “Additionally we expect that 2013 will be a hard year for thermal coal producers in Central Appalachia where current large stockpiles will need to be reduced, and the situation is further exacerbated by a large number of rollover contracts for deferred coal deliveries that resulted from the weak market in 2012. While we have recently seen an increase in natural gas prices and some reversal of coal to gas switching for coal produced in the Powder River Basin and to some extent the Illinois Basin, we still expect there to continue to be some fuel switching from coal to natural gas into 2013 and beyond for Appalachian coal unless there are further increases in natural gas prices.”
Natural Resource Partners is a master limited partnership headquartered in Houston, Texas, 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 and gas reserves across the United States that generate royalty income for the partnership.