Transcript Natural Resource Partners

Natural Resource Partners L.P.
Tug Valley Mining Institute
Williamson, WV
October 19, 2006
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 2005 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.
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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
– Eleven States
• 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
• Small but growing percentage of income from throughput fees on
coal preparation and handling facilities, wheelage and oil and gas
royalties
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NRP Profile
Reserves (12/31/2005):
~2.0 billion tons
Annual Production - 2005:
53.6 million tons
Number of Leases (6/30/2006):
178
Number of Lessees (6/30/2006):
67
Market Capitalization (at $51.25 per unit):
Distribution per Unit (3Q 2006):
$1.3 billion
$0.85 quarterly
$3.40 annualized
Senior Notes (6/30/2006):
$247 million
Drawn on Revolver (6/30/2006):
$10 million
Total Revolver Size:
Cash on Balance Sheet (6/30/2006):
$175-$300 million
$53 million
_______________________
(1)
As of 06/30/06 NRP had $165 million of $175 million capacity available
under its credit facility. NRP also retains the right to increase the size of
the credit facility to $300 million without obtaining lender consents.
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(1)
Diverse Portfolio of Properties
Northern Powder River Basin
Reserves – 132 mm tons (7%)
Low Sulfur
•
•
•
2.0 billion tons at 12/31/05
23% Met / 77% Steam
58% Low Sulfur / 35% Compliance
Illinois Basin Reserves
62 mm tons (3%)
Medium and High Sulfur
Coal Producing Basins in U.S.
States in which NRP has Coal Reserves
Appalachia
Reserves – 1,835 mm tons (90%)
Low, Medium, High Sulfur
Note: Reserve information as of December 31, 2005
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Stable and Predictable Historical Performance
(Tons in millions)
Coal Production
•
60
50
40
30
20
10
0
•
2002
2003
Appalachia
2004
Illinios Basin
2005
NPRB
•
150
($ in millions)
125
100
•
50
Diversified sources of royalty
revenues
Downside price protection
without limiting upside;
minimum royalty payments of
$29.6 mm at 12/31/05
Coal Royalty Revenues
75
Royalty structure supports
stable revenues
Transportation / customer
diversity
25
0
2002
2003
Appalachia
2004
Illinios Basin
2005
NPRB
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Active Acquisition History
Over the last four years
• Completed 20 acquisitions totaling ~$500 million
– Acquired ~ 1.1 billion tons of coal reserves
• Double the reserves since IPO
– Acquired overrides on an additional ~ 120 million tons
– Acquired 3 coal preparation, handling and rail load-out facilities
• Diversified our portfolio of properties and lessees
– Tripled the number of leases
– More than doubled the number of lessees
– Increased our position in Illinois Basin
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Sedgman Agreement on Coal Handling Facilities
• NRP entered into agreement with Sedgman USA in Aug 2006 to jointly
identify coal preparation, handling and rail load-out facilities in the
U.S.
• Sedgman will design, build and operate the facilities
• NRP will own and lease the facilities to Sedgman for a throughput fee
– Fee based on the higher of percentage of the gross selling price or a fixed fee per ton
– NRP will receive monthly minimums
– Analogous to NRP’s royalty arrangement for coal reserves
– NRP – NO maintenance capital expenditures or operating expenses
• Signed agreements to purchase the first two facilities
– Coal Mountain and Red Fox
– Total purchase price for facilities - $23.8 million
– Paid $22.4 million to date
– Anticipate annual revenues of approximately $4.5 million
• Stable income stream to support distributions
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Increased Distributions
 Increased distributions 14 out of 15 quarters since IPO, 66% overall
Distributions
$3.50
$3.25
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75
06
2Q
05
4Q
05
2Q
05
4Q
04
2Q
03
4Q
03
2Q
4Q
02
$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.
(2)
The last distribution for the 3Q 06 of $0.85 per unit has been declared and will be paid on November 14,
2006 to unitholders of record on November 1, 2006.
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Strong Balance Sheet – 6/30/06
Cash
$ 52.6 mm
Total assets
$ 723.8 mm
Fixed rate debt
$ 247.0 mm
Floating rate debt
$ 10.0 mm
Debt / Total capitalization
36%
Weighted average interest rate on Senior Notes
(Fixed)
5.2%
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Attractive Tax Structure Due to Coal
•
Distributions are treated as return of capital
•
Unitholders are taxed on the income generated by the
partnership
•
Coal royalty revenues are taxed as 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
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Characteristics Of An MLP Transaction
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Qualifying Income for Master Limited Partnerships
Natural Resource Based– Naturally Occurring
 Coal
 Aggregates
 Timber
 Oil and Gas
 Other Minerals
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Qualifying Income for MLP’s
Natural Resource Activity
 Exploration
 Development
 Mining
 Production
 Processing
 Refining
 Marketing
 Storage
 Transportation
 Pipeline
 Other
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Qualifying Income for MLP’s
Other Qualifying Income
 Real Property Income
 Rents from real property
Unrelated lessee
Pipeline
 Gain from sale of assets generating qualifying income
 Interest
 Dividends
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MLP Financing Characteristics
Advantages
Disadvantages
 No repayment obligation
 Long lived cost
 Flexible
 Upside subject to royalty
 Management retains 100%
control
 Component of cash cost
calculation
 Product/Price denominated
 Risk sharing
 Project specific – not
company
 Lower payments per annum
 Non-dilutive to
owners/shareholders
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Financing Vehicle Characteristics - Equity
Advantages
Disadvantages
 No repayment obligations
 Permanence
 Not operations based
 Possible loss of control
 Enhances liquidity
 Dilution
 Not always available
 Involves all company
assets
 Cost
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Financing Vehicle Characteristics - Debt
Advantages
Disadvantages
 Finite life
 Restrictive covenants
 Non-dilutive to
 Conflicts
owners/shareholders
 Only late stage projects
 $ denominated
 Structure of payments
 Preferential claims
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MLP - Royalty Financing - Summary
 More closely aligns interests
 Provides alternative/additional source of funds
 Shifts some risk to financing party
 Combines advantages of debt and equity
 Less expensive than equity and more expensive than debt
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Natural Resource Partners L.P.
Tug Valley Mining Institute
Williamson, WV
October 19, 2006