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Exports, declining stockpiles drive strong Q4'17 for Natural Resource Partners

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Exports, declining stockpiles drive strong Q4'17 for Natural Resource Partners

Declining utility stockpiles and export demand for both thermal and metallurgical coal contributed to a strong 2017 fourth quarter year over year for Natural Resource Partners LP. However, a company executive cautioned that lack of access to capital and a skilled labor shortage are roadblocks to metallurgical players ramping up production.

The U.S.-based partnership with a focus on royalty payments from coal holdings reported a net income of about $30.7 million in the fourth quarter, a significant increase from the nearly $3.5 million reported in the year-ago period.

The resource partnership credited recent revenue gains in Appalachia to increased metallurgical coal prices.

"Unlike thermal coal, metallurgical coal does not face the threat of environmental regulation of the power industry, low natural gas prices and renewable power sources," President and COO Craig Nunez said on a March 1 earnings call.

Kevin Craig, executive vice president of coal for GP Natural Resource Partners LLC, said new capital investment, at least in the Appalachia region, is focused on the metallurgical market.

However, Nunez said later in the same call that U.S. producers hoping to meet international demand need more access to capital and experienced miners.

"I think those constraints help keep the market where it's at," Nunez said.

Regional skilled labor shortages have complicated the stabilization of the U.S. coal market, as some miners leave the sector for jobs elsewhere and others retire.

NRP's royalty revenue increased slightly in the Powder River Basin thanks to higher prices and production.

Lower output in the Illinois Basin caused a $4.1 million decrease in coal royalty revenue, due primarily to the temporary relocation of some production off of NRP's reserves.

Craig said thermal coal should remain stable in 2018 due in part to ongoing strength in the export market for NRP's producers, and steady domestic pricing despite gas prices around $2.60/Mcf to $2.70/Mcf gas.

Declining stockpiles have also helped the producers that pay royalties to NRP.

"We've seen stockpiles in the last 12 to 18 months go from 191 million tons down to 137 [million tons] or 140 million tons," Craig said.

For the full year, net income dropped about 8.5% in 2017 compared to 2016, when NRP had a net gain of about $29.1 million on asset sales compared to the roughly $3.9 million in 2017.

Aside from coal royalties, NRP derives revenue from sources like soda ash and construction aggregates.