Transcript Natural Resource Partners

Natural Resource Partners L.P.
Platts Coal Properties Conference
March 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.
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
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
53.6 million tons
Number of Leases:
62
176 (3)
Number of Lessees:
31
67 (3)
Market Capitalization:
$454 million
$1, 327 million (4)
Distribution Per Unit:
$0.5125 quarterly
$0.7625 quarterly
$2.05 annualized
$3.05 annualized
Senior Notes:
$0 million
$256 million (6)
Drawn on Revolver:
$0 million
$10 million(6)
Total Revolver Size:
$100 million
$175-$300 million (5)
$1 million
$48 million(3)
Cash on Hand
_______________________
(1)
(2)
(3)
(4)
(5)
(6)
As of 12/31/2005.
For 2002 and2005, respectively.
As of 12/31/2005.
As of 02/17/2006.
As of 01-31-06 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 $300 million without obtaining lender consents.
As of January 19, 2006
Diverse Portfolio of Properties


2.0 billion tons at 12/31/05
(met and
steam)
58% low sulfur / 35% compliance
Northern Powder River Basin
Reserves – 132 mm tons (7%)
Low Sulfur
Illinois Basin
Reserves – 62 mm tons (3%)
Medium and High Sulfur
Coal Producing Basins in U.S.
States in which NRP has Coal Reserves
Note: Reserve information as of December 31, 2005
Appalachia
Reserves – 1,835 mm tons (90%)
Low, Medium, High Sulfur
Stable and Predictable Historical Performance
(Tons in millions)
Coal Production
60
50
40
30
20
10
0
•
•
2000
2001
Appalachia
150
2002
2003
Illinios Basin
2004
2005
NPRB
•
Coal Royalty Revenues
($ in millions)
125
100
75
•
50
25
0
2000
2001
Appalachia
2002
2003
Illinios Basin
2004
NPRB
2005
Royalty structure supports
stable revenues
Diversified sources of
royalty revenues
Downside price protection
without limiting upside;
minimum royalty
payments of $29.6 million
at 12/31/05
Transportation / customer
diversity
Active Acquisition History
Major Acquisitions
Acquisition
AFG (Penn Central)
Area F/Lexington
Williamson Development(2)
Plum Creek Timber Company
BLC Properties
East Kentucky
PinnOak
Alpha Natual Resources
El Paso Properties
Total
(1)
(2)
(3)
Date
Nov 2005
Sep 2005
Jul 2005
Mar 2005
Jan 2004
Nov 2003
Jul 2003
Apr 2003
Dec 2002
Reserves
(mm tons)
179
25 (1)
88 (3)
85
176
21
79
353
108
1114
Does not include 14 million tons of override reserves.
We closed on the first two phases of this acquisition. We expect to complete the final acquisition of the remaining
reserves in the middle of 2006.
Reflects owned reserves of 88 million tons in total, of which we have closed on approximately 2/3rds. Does not include
56 million of override reserves.
Increased Distributions
 Increased distributions 11 out of 12 quarters since IPO, 49% overall
Distributions
$3.25
$3.00
$2.75
$2.50
$2.25
$2.00
$1.75
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$1.50
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(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.
Solid Balance Sheet
December 31,
2005
Cash and Cash Equivalents
$
47,691
Current Portion of Long-Term Debt
Long Term Debt
Senior Notes
Credit Facility
Total Debt
Partners' Capital
Total Capitalization
$
9,350
$
196,950
25,000
231,300
425,908
657,208
Total Debt / Total Book Capitalization
$
35.2%
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
Characteristics Of An MLP Transaction
Qualifying Income for Master Limited Partnerships
Natural Resource Based– Naturally Occurring
 Coal
 Aggregates
 Timber
 Other Minerals
 Oil and Gas
Qualifying Income for MLP’s
Natural Resource Activity
 Exploration
 Marketing
 Development
 Storage
 Mining
 Transportation
 Production
 Processing
 Refining
 Pipeline
 Other
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
MLP Financing Characteristics
 Advantages
 No repayment obligation
 Flexible
 Management retains 100%
control
 Product/Price denominated
 Risk sharing
 Project specific – not company
 Lower payments per annum
 Non-dilutive to shareholders
 Disadvantages
 Long lived cost
 Upside subject to royalty
 Component of cash cost
calculation
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
Financing Vehicle Characteristics - Debt
 Advantages
 Disadvantages
 Finite life
 Restrictive covenants
 Non-dilutive to
shareholders
 Conflicts
 Only late stage projects
 $ denominated
 Structure of payments
 Preferential claims
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
Natural Resource Partners L.P.