daniel w. scott
cowen and company
Natural Resource Partners (NRP) is
a master limited partnership headquartered in Houston, with its operations headquarters in Huntington, W.
va. NRP is principally engaged in
the business of owning and managing mineral reserve properties. NRP
primarily owns coal, aggregate, and
oil & gas reserves across the United
States that generate royalty income for
NRP reported q2’ 14 adjusted EbITDA ahead of estimates driven by better-than-expected Appalachian royalties
and oil & gas operation performance.
While coal revenues are projected to
be lower than initial expectations, the
fruits of its diversification efforts are
materializing as other commodities offset the decline and led NRP to reiterate
NRP reported q2’ 14 adjusted
EbITDA of $77 million, ahead of our
$69 million estimate and consensus
of $68 million. Higher-than-expected
Appalachian royalty rates, driven by
a rebound in Northern Appalachian
($1.07/ton vs. $0.80 estimate) and
Central Appalachian ($4.50/ton vs.
$4.30) and higher than expected oil
& gas performance ($17.8 million vs.
$10 million), somewhat offset by higher
general & administrative expenses, accounted for the beat.
Coal-related revenues accounted for
61% of total q2’ 14 revenues, down
from 78% and 65% in q2’ 13 and
q1’ 14, respectively. Thermal cuts are
being reflected as met coal comprised
36% of coal production and 43% of
coal royalties versus 28% and 40% in
q2’ 13 and 28% and 39% in q1’ 14.
We acknowledge that diversification
efforts are bearing fruit and will revisit
our distribution assessment as this piece
of the pie continues to grow. We have
updated 2014 and 2015 estimates for
lower coal volumes, offset by higher oil
& gas revenues.
paul s. Forward, cFa
This morning (Aug. 19), Natural
Resource Partners announced that it
has entered into a definitive agreement
to acquire the privately held limited
partnership vantaCore Partners l.P., for
$205 million, with an anticipated clos-
ing date in q4’ 14. NRP plans to fund
the purchase through issuance of $36
million of common units to certain sell-
ers, with the balance financed with the
firm’s revolving credit facility.
vantaCore Partners, a construction
materials firm with approximately 230
employees, operates three hard rock
quarries, six sand and gravel plants, two
asphalt plants, and a marine terminal
across Pennsylvania, West virginia,
Tennessee, Kentucky and louisiana, with
a customer base that includes some gas
and oil producers in the marcellus and
Utica shale regions.
vantaCore will be operated as a
wholly-owned subsidiary of NRP by
current CEO Colin Oerton and COO
NRP expects the acquisition to be
immediately accretive to earnings and
cash flow, providing an additional
$25 million of EbITDA generation over
the next 12 months compared to our
current 2014 EbITDA estimate of $290
million (not reflecting assumed contribution from vantaCore).
We view this acquisition as in line
with the firm’s focus on diversifying
its revenue generation in response to
continued declines in Appalachian
ed mccarthy, cFp
Diversification and cost controls boost the performance of coal producers.