Transcript Natural Resource Partners

RBC Capital Markets
MLP/Trust Conference
November 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.
What is 3 years old and
weighs nearly 2 billion tons?
What MLP has increased:
Production by ~70%
Reserves by ~80%
Lessees by 100%
Leases by ~165%
and
has a reserve life of over 38 years
What MLP has….?
Grown its distribution 44% in the last 3
years
Increased its distribution nine
consecutive quarters
Over two full quarters of distributions
in cash in the bank
A distribution coverage of 1.37x
Natural Resource Partners L.P.
Evolution Since Natural Resource Partners’ IPO
IPO (10/11/2002)
Current
Reserves:
~1.2 billion tons
~2.0 billion tons (1)
Annual Production: (2)
30.5 million tons
~52 million tons
Number of Leases:
62
165 (3)
Number of Lessees:
31
62 (3)
Market Capitalization:
$454 million
$1,384 million (4)
Distribution Per Unit:
$0.5125 quarterly
$0.7375 quarterly
$2.05 annualized
$2.95 annualized
Senior Notes:
$0 million
$206 million
Drawn on Revolver:
$0 million
$6 million
Total Revolver Size:
$100 million
$175-$300 million (5)
$1 million
$49 million(3)
Cash on Hand
_______________________
(1)
(2)
(3)
(4)
(5)
As of 12/31/2004 increased for 2005 acquisitions.
For 2002 and latest guidance for 2005 respectively.
As of 9/30/2005.
As of 11/10/2005.
As of 9-30-05 NRP has $169 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.
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
Diverse Portfolio of Properties
Northern Powder River Basin
Low Sulfur
Reserves – 8%
Illinois Basin
Medium and High Sulfur
Reserves - 3%
Coal Producing Basins in U.S.
States in which NRP has Coal Reserves
Appalachia
Low, Medium, High Sulfur
Reserves – 89%
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 $26.6 million
at 9/30/05
Transportation / customer
diversity
Active Acquisition History
Major Acquisitions
Acquisition
Area F/ Lexington
Steelhead Development Company (2)
Plum Creek Timber Company
BLC Properties
East Kentucky
PinnOak
Alpha Natural Resources
El Paso Properties
Total
(1)
(2)
(3)
Date
Sep 2005
Jul 2005
Mar 2005
Jan 2004
Nov 2003
Jul 2003
Apr 2003
Dec 2002
Reserves
(mm tons)
25
88
85
176
21
79
353
108
935
Does not include 14 million tons of override reserves.
On July 12, 2005, we closed on the first phase of this acquisition, which included 36.5 million tons of coal
reserves and 11.0 million of override 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.
Reflects owned reserves of 88 million tons in total, 38.5 million of which we closed on in July 2005. Does not include
56 million of override reserves.
(1)
(3)
Increased Distributions
 Increased distributions 10 out of 11 quarters since IPO, 44% overall
Distributions
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75
Oct 05
Jul 05
Apr 05
Jan 05
Oct 04
Jul 04
Apr 04
Jan 04
Oct 03
Jul 03
Apr 03
Jan 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.
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
Solid Balance Sheet
September 30
2005
Cash and Cash Equivalents
$
49,457
Current Portion of Long-Term Debt
$
9,350
Long Term Debt
Senior Notes
202,950
Credit Facility
6,000
Total Debt
$
Partners’ Capital
Total Capitalization
Total Debt/Total Book Capitalization
218,300
421,001
$
639,301
34.1%
Attractive Tax Structure
 Distributions are treated as return of capital
 Unit holders 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
Industry Highlights
Favorable Current Coal Fundamentals
Domestic Demand
 Growing economy and demand for electricity
 High natural gas prices
 Low stockpile levels at utilities
 Coal-fired equipment has become cleaner
 Increase in plans to build new coal-fired plants
Global Demand
 Increased U.S. export market
 Favorable exchange rate with European Union
 Increased demand due to explosion of Chinese economy
Coal Industry Dynamics
Growing US Coal Demand
Primary US Electric
Power Fuel Source
1,508
1,084 1,126
1,229 1,273
1,352
1,000
Conventional
Hydroelectric
7%
Nuclear
20%
500
Electricity
25
20
20
20
15
20
10
20
05
20
00
0
20
(tons in millions)
1,500
Other
Source: Energy Information Administration
Natural Gas
18%
Other
5%
Coal
50%
U.S. Electric Utility Avg. Cost for Fossil Fuels
Source: Energy Information Administration
NRP – A Proxy for the Coal Industry
 Nearly 2 Billion tons of low, medium and high sulfur coal reserves
 62 lessees produce approximately 5% of the US production from our
165 leases
 Three major coal producing regions in nine states
 Appalachia
– Northern
– Central
– Southern
 Illinois Basin
 Powder River Basin
 Production - Metallurgical Coal – 28%
Steam Coal – 72%
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
$0.7375 per quarter
$0.7375 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
First conversion of 25% of NSP into NRP occurred
on November 14, 2005
Investment Highlights
 Attractive portfolio of long-life, diverse properties
 Primarily lease 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.