Transcript Natural Resource Partners

Natural Resource Partners L.P.
RBC Capital Markets
2nd Annual MLP Conference
Dallas, TX
November 16, 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.
2
NRP – A Lower Risk Proxy for the Coal Industry
•
Over 2 billion tons of low, medium and high sulfur coal
reserves
•
69 lessees produce approximately 5% of the US production
from our 180 leases
•
Three major coal producing regions in eleven states
•
2006 estimated production: 50.0 million tons to 53.5 million
tons (metallurgical – 20% steam – 80%)
•
2006 estimated total revenues - $165 million to $169 million
3
NRP Financial Profile
Market Capitalization ($52.50 per unit):
Distribution per Unit (3Q 2006):
$1.3 billion
$0.85 quarterly
$3.40 annualized
Senior Notes (9/30/2006):
$247 million
Drawn on Revolver (9/30/2006):
$63 million
Total Revolver Size:
$175-$300 million (1)
Long Term Debt to Total Capitalization:
Cash on Balance Sheet (9/30/2006):
41%
$61 million
_______________________
(1)
As of 09/30/06 NRP had $112 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.
4
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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Diversity Leads to Stability
• NRP’s large number of lessees
– Diversifies types of operations
– Diversifies coal types and qualities
– Diversifies customer base
– Diversifies revenues
Leads to More Stability of Cash Flows
• Revenue is NOT tied to
– One mine
– One mining method
– One group of miners
– One region
– One shipper
– One customer
6
How NRP Differs from a Coal Producer
• NRP revenue is tied to a coal miner’s top line revenue
• Increased mining costs can be NRP’s friend
• Production cuts at one mine can keep prices higher across the
entire industry sector which improves NRP’s top line
• NRP has no maintenance capital expenditures
• NRP has low G&A expenses
7
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
8
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
• Signed agreements to purchase the first two facilities for $23.8
million
– Anticipate annual revenues of approximately $4.5 million
• Stable income stream to support distributions
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Acquisition Opportunities
• Our sponsor owns over 20 billion tons of currently nonproducing coal that must be offered to NRP when any property
reaches a value of $10 million
• Breadth of our lessees presents more acquisitions
opportunities
• NRP regional managers are in the coal fields every day looking
for new opportunities
• Deals are brought to us due to our reputation
• New agreement with Sedgman on coal preparation plants and
coal handling facilities
• Opportunities in other qualified asset classes
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Increased Quarterly Distributions
 Increased distributions 14 out of 15 quarters since IPO, 66% overall
Distributions
$1.00
$0.90
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
06
2Q
05
4Q
05
2Q
05
4Q
04
2Q
03
4Q
03
2Q
4Q
02
$0.00
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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
12
Short Term Outlook for Domestic Coal Market
• Because of the abnormal weather, utility stockpiles are at
normal levels resulting in short term spot market pricing
pressure
– However, very little coal is sold on the spot market
• Most of NRP’s coal is sold by our lessees under long term
contracts
• In the 3rd quarter NRP lessees had higher prices in every
single region
13
Long Term Outlook for the Coal Markets
• New coal demand will be generated by:
– New coal-fired power plants under construction
– New coal uses
• coal to liquids
• coal gasification
• EIA expects total electricity sales to increase by 50% by 2030
• EIA expects coal fueled electricity to gain additional market
share over the next 25 years growing to approximately 57% by
2030 from 50% today
• New demand for higher sulfur coal due to the large number of
scrubbers being added to exiting power plants
EIA – Energy Information Agency
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Investment Highlights
•
Attractive portfolio of long-life, diverse properties
•
Lease to 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
•
A lower risk proxy for the coal industry
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Natural Resource Partners L.P.
RBC Capital Markets
2nd Annual MLP Conference
Dallas, TX
November 16, 2006