Transcript Natural Resource Partners

Natural Resource Partners L.P.
Platts Coal Properties Conference
March 2009
Mergers, Acquisitions, Growth &
Liquidity in a Credit/Equity
Constrained World
Nick Carter
President & COO
(304) 522 – 5757
[email protected]
5260 Irwin Road
Huntington, WV 25705
Forward-Looking Statements
The statements made by representatives of Natural Resource Partners L.P.
(“NRP”) during the course of this presentation that are not historical facts are
forward-looking statements. Although NRP believes that the assumptions
underlying these statements are reasonable, investors are cautioned that such
forward-looking statements are inherently uncertain and necessarily involve risks
that may affect NRP’s business prospects and performance, causing actual results
to differ from those discussed during the presentation.
Such risks and uncertainties include, by way of example and not of limitation:
general business and economic conditions; decreases in demand for coal;
changes in our lessees’ operating conditions and costs; changes in the level of
costs related to environmental protection and operational safety; unanticipated
geologic problems; problems related to force majeure; potential labor relations
problems; changes in the legislative or regulatory environment; and lessee
production cuts.
These and other applicable risks and uncertainties have been described more fully
in NRP’s 2008 Annual Report on Form 10-K. NRP undertakes no obligation to
publicly update any forward-looking statements, whether as a result of new
information or future events.
What A Roller Coaster!
Closing Prices
Company
KOL - Market Vectors Coal
EOY 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008
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$38.15
$58.00
$29.44
$14.89
BTU - Peabody Energy
$61.64
$51.00
$88.05
$45.00
$22.75
ACI - Arch Coal
$44.93
$43.50
$75.03
$32.89
$16.29
CNX - Consol Energy
$71.52
$69.19
$112.37
$45.89
$28.58
ANR - Alpha Natural Resources
$32.48
$43.44
$104.29
$51.43
$16.19
MEE - Massey Energy
$35.75
$36.50
$93.75
$35.67
$13.79
PCX - Patriot Coal
$41.74
$46.97
$153.29
$29.05
$6.25
JRCC - James River Coal
$11.18
$17.52
$58.69
$21.99
$15.33
ARLP - Alliance Resource Partners
$36.27
$35.00
$55.68
$31.52
$26.88
NRP - Natural Resource Partners
$32.46
$28.35
$41.20
$25.33
$17.45
NRP’s Unique Perspective
73 Lessees/200+ Leases
3 Coal Basins
Lease Provisions
- Assignments
- Subleasing
- Sale of company stock
Relationships
10 – 15 Regional Managers in field each week
Status of M & A/Financing Activity
2008 was slowest in memory
• First half – with price run-up, only foreign steel/met coal
activity
• Second half – coal price falling, no forward price
visibility, equity values contracting, credit dried up
• More coal transactions were cancelled than closed
• Best way to raise capital – cut dividends, but most coal
companies don’t pay significant or any dividend
• U.S. Secondary stock offerings in 2008 – equity
investors lost ~66%
• Only 1 IPO in 2009 –Infant formula
Why Not More M&A in 2008?
• Buyers wanted to conserve cash
Rapid decline in coal prices
Bottom not found
Capex needs increasing
Mining cost in Appalachian Basin and PRB increasing
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Lack of debt or equity financing
Credit market dried up
Most LOC are operating not acquisition oriented
Take out financing is difficult/impossible
Last person you want to see is your banker
No one wants to sell equity at these prices
Why? continued
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Lack of Bonding Capacity
Not often cited as reason
Bonding amounts just keep going up
A real cash eating machine
Long – term use of liquidity
Low Coal Prices
Hard to project increasing EBITDA
Margin squeeze - bad enough where you know costs
and workforce
Make it harder to project savings from synergy
Selected Acquisitions
Arch Coal to Buy RTEA’s Jacob’s Ranch Mine
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$761 million
Financing Unknown
Regulatory Approval
Synergy – Contiguous
9 Year Reserves
Cliffs Natural Resources / Alpha Natural Resources
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Announced July 15 – Terminated Nov. 7
$9.8 Billion on offer date
Would have been largest iron ore and met coal
Cliffs did not believe they could get shareholder approval
Stock Prices
– Cliffs
– ANR
7/14 – $113.44 11/06 - $30.46
7/14 - $98.72
11/06 - $24.36
3/13 – $13.03
3/13 - $19.47
 Price was set at .95 x Cliffs Share + $22.23/share in
cash.
 Value on termination was ¼ of original $9.8 Billion
Patriot Coal Buys Magnum Coal
 Stock transaction – worth $709 million at announcement,
$1.5 billion at close
 Formed (pro-forma) second largest CAPP producer
 Appeared to have significant synergy
 Top notch management team that worked well to each
strengths
 Maximization of coal sales and sourcing
 Even with all this, today’s market cap is $240 million
ArcelorMittal Buys Mid-Vol and Concept
 Two independent contiguous companies bought within a
month
 Subsequently announced consolidation
 Both deals were conceived and priced before met price
run-up
 Sellers did not get greedy
 2.3 – 3.0 mm tpy high quality met coal
 140 mmt of reserves
 Lots of synergies
 Pricing unknown
Cline Group Buys ExxonMobil’s Monterey Mine
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Exxon had extended effort to sell over several years
Mine closed at end of 2007
Cline has nearby Hillsboro reserves and permit
NRP transaction pursuant to global arrangement
– $143.7 Million
• Reserves
• Rail Loop
• Loadout
 Exxon price for Monterey not announced
Severstal Buys PBS Coal
 Price originally announced as $1.3 billion but was
reduced by $300 million
 NAPP producer of met and steam coal – 4.0 mmtpy
capacity
 Severstal tying up supply after purchase of Weirton and
Wheeling Pitt
Bankruptcy (the earlier model for M&A)
 Black Diamond – Bankruptcy
– Seems headed for sale
– Will there be a stalking horse
 Clearwater - Bankruptcy
– DIP financing forced liquidation
Natural Resource Partners L.P.