Transcript Natural Resource Partners

Natural Resource Partners L.P.
Herold’s
Pacesetters Energy Conference
September 2005
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 2004 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.
Overview of Natural Resource Partners
 Own and manage coal properties in the three major coal
producing regions of the United States:
 Appalachia, Illinois Basin and Western US
 Lease reserves to experienced mine operators under long-term
leases in exchange for royalty payments
 Royalty payments based on percentage of sales price or fixed
price, with periodic minimum payments
 Lessees provide coal to diverse group of utilities, steel
companies and industrial users
Executing on Strategy
Strategy
Maximize Royalty
Revenues
Explore New
Opportunities
Diversify Operator
Base
Acquire / Diversify
Reserves
Comment
• Work with lessees to maximize production
• Monitor lessees’ mining plans
• Partner with lessees
• Explore new coal & other reserves
• Identify additional operators
• Continue to diversify via acquisitions
• Pursue acquisition / diversification of reserves
• Seek opportunities in all U.S. coal regions
Evolution Since Natural Resource Partners’ IPO
IPO (10/11/2002)
Current
Reserves:
~1.2 billion tons
~1.8 billion tons (1)
Annual Production: (2)
30.5 million tons
48.4 million tons
Number of Leases:
62
160 (3)
Number of Lessees:
31
60 (3)
Market Capitalization:
$454 million
$1,552 million (4)
Distribution Per Unit:
$0.5125 quarterly
$0.7125 quarterly
$2.05 annualized
$2.85 annualized
$0 million
$206 million
Total Revolver Size:
$100 million
$175-$300 million (5)
Cash
on Hand
_______________________
$1 million
$51 million(3)
Senior Notes:
(1)
(2)
(3)
(4)
(5)
As of 12/31/2004.
For 2002 and 2004, respectively.
As of 6/30/2005.
As of 9/15/2005.
Following the issuance of senior notes on 7/19/2005, NRP has the full $175 million of capacity available under
its credit facility. NRP also retains the right to increase the size of the credit facility to $300 million without
obtaining lender consents.
Diverse Portfolio of Properties
Northern Powder River Basin
Reserves – 153 mm tons (9%)
Low Sulfur
Illinois Basin
Reserves – 20 mm tons (1%)
Medium and High Sulfur
Coal Producing Basins in U.S.
States in which NRP has Coal Reserves
Note: Reserve information as of December 31, 2004
 1.8 billion tons at 12/31/04
(met and steam)
 69% low sulfur / 37% compliance
Appalachia
Reserves – 1,596 mm tons (90%)
Low, Medium, High Sulfur
Diverse, Well-Established Lessee Base
Top Ten U.S. Coal Producers ($ and tons in millions)
FY 2004
Revenues
FY 2004
Production
Percent of U.S.
Total Production
Peabody Energy
3,632
193.3
17.4%
Arch Coal
2,077
148.6
13.4%
NA
129.7
11.7%
2,777
67.7
6.1%
445
61.4
5.5%
1,767
42.0
3.8%
North American Coal
111
34.3
3.1%
Kiewit Mining Group
87
30.5
2.7%
Westmoreland Coal
333
29.0
2.6%
TXU Mining
NA
24.0
2.2%
Company
Kennecott Energy & Coal
CONSOL Energy
Foundation Coal (1)
Massey Energy
• 41.0% of royalty
revenues come from top
10 coal producers
• 160 leases with 60
lessees at 6/30/05
• 82.0% of royalty
revenues from NRP’s
top 10 lessees
• Typical lease 5-10 years
with option to extend
• Lessees responsible for
all sales, processing and
transporting
______________________
Note: NRP’s lessees denoted in bold and with shading.
Source: National Mining Association Coal Producer Survey 2004.
(1) Revenue reported for the period from April 23, 2004 (date of incorporation) to December 31, 2004.
Stable and Predictable Historical Performance
(Tons in millions)
Coal Production
60
50
40
30
20
10
0
•
•
2000
2001
Appalachia
(Tons in millions)
125
2002
2003
Illinios Basin
2004
NPRB
•
Coal Royalty Revenues
100
75
•
50
25
0
2000
2001
Appalachia
2002
Illinios Basin
2003
NPRB
2004
Royalty structure supports
stable revenues
Diversified sources of
royalty revenues
Downside price protection
without limiting upside;
minimum royalty
payments of $25.4 million
at 6/30/05
Transportation / customer
diversity
No Direct Operating Costs or Risks
Operating Cost
Operating Risks
 Capital Expenditures
 Reclamation Exposure
 Labor
 Regulatory/Permitting
 Employee Benefits
 Competition
 Property Taxes
 Weather
 Transportation / Processing
 Economy
Active Acquisition History
Acquisition
Steelhead Development Company (1)
Date
Jul 2005
Reserves (mm)
88 (2)
Plum Creek Timber Company
Mar 2005
85
BLC Properties
Jan 2004
176
East Kentucky
Nov 2003
21
PinnOak
Jul 2003
79
Alpha Natural Resources
Apr 2003
353
El Paso Properties
Dec 2002
108
Total
910
____________________
(1) On July 12, 2005, we closed on the first phase of this acquisition, which included 47.5 million tons of coal reserves. We
expect to complete the acquisition of the remaining reserves in two steps: one at the beginning of 2006 and the other in
the middle of 2006.
(2) Reflects owned reserves of 88 million in total, 38.5 million of which we closed on in July 2005. Does not include 56
million of override reserves.
Increased Distributions
 Increased distributions 9 out of 10 quarters since IPO, 39% overall
Distributions
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75
0
Ju 3
l0
O 3
ct
0
Ja 3
n
0
A 4
pr
0
Ju 4
l0
O 4
ct
0
Ja 4
n
0
A 5
pr
0
Ju 5
l0
5
pr
A
Ja
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03
$1.50
____________________
(1) The initial distribution of $0.4234 is equivalent to a full quarter minimum distribution of $0.5125 prorated for the
period from October 17, 2002, the date of closing of the initial public offering of common units,
through December 31, 2002, the end of the quarter.
Significant Growth Potential
 Coal royalty business highly fragmented with numerous small
operators
 Coal companies continue to explore reserve monetization
opportunities
 Opportunity to explore other qualified minerals outside of coal
 Substantial capacity under revolver and good access to capital
markets
 Proven ability to identify and integrate acquisitions
Financial Overview
Strong Financial Performance
140
$133
(figures in millions)
120
$106
100
$74
80
60
40
$50
44
48
51
31
20
0
Average Royalty
Revenue (per ton):
2002
2003
2004
2005 Guidance*
$1.58
$1.66
$2.20
$2.61
Production (mm tons)
___________________
* Midpoint of guidance range.
Coal Royalty Revenue ($ mm)
Solid Balance Sheet
($ in thousands)
Cash and Cash Equivalents
Actual as of
June 30, 2005
As Adjusted as of
June 30, 2005(1)
$50,760
$47,760
$9,350
$9,350
Senior Notes
146,950
196,950
Credit Facility
18,000
-
$174,300
$206,300
418,739
$593,039
418,739
$625,039
Current Portion of Long-Term Debt
Long-Term Debt
Total Debt
Partners' Capital
Total Capitalization
Total Debt / Total Book Capitalization
29.4%
33.0%
Net Debt / Net Book Capitalization
22.8%
27.5%
____________________
(1) As adjusted for the Steelhead Acquisition and Senior Notes issued on July 2005.
NRP (Common) versus NSP (Subordinated)
 Subordinated units have many of the same characteristics as common units
NRP - Common Units
NSP -Subordinated Units
When Issued
At IPO (October 2002)
At IPO (October 2002)
When Publicly Traded
October 2002
August 2005
Current Distribution
$0.7125 per quarter
$0.7125 per quarter
Minimum Distribution
$0.5125 per quarter
None
Voting Rights to Remove
General Partner
Yes
No
Preference on
Distributions
At or below $0.5125 per
quarter
None
Entitled to Arrearages on
Distributions, if any
Yes
No
Attractive Tax Structure
 Distributions are treated as return of capital
 Unit holders are taxed on the income generated by the
partnership
 Coal royalty revenues on properties held for more than one year
are taxed as Section 1231 gains (long term capital gains)
 Approximately 60% of the revenue generated is sheltered by
depletion deductions
 Depletion does not have to be recaptured upon sale of the units
 If units are held for more than one year, receive capital gains
treatment on the sale
Investment Highlights
 Attractive portfolio of long-life, diverse properties
 Primarily leases to large operators with diverse customer base
 Distribution supported by stable, royalty-based cash flows
 No direct exposure to mining operating costs or risks
 Well-positioned for growth via coal and mineral acquisitions
 Demonstrated ability to grow asset base and distributions
 Coal royalty revenues are taxed at capital gains rates
Natural Resource Partners L.P.