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Natural Resource Partners reports 'solid' Q2 results, company stabilization

Following a strong second quarter, Natural Resource Partners LP's COO said the company has stabilized and does not foresee any major disruptions.

"We are becoming increasingly comfortable with each passing quarter of stable results that our past performance may be indicative of a sustainable run rate that we can plan on for the future," said President and COO Craig Nunez on an Aug. 9 earnings call.

Over the last 12 months, Natural Resource Partners, or NRP, recorded $233 million of EBITDA, $145 million of free cash flow and $89 million of net income attributable to common unit holders, he said. The "strong performance" positioned the company to pay off $22 million of distributions to common unit holders and retain $68 million in earnings, the COO said.

"We have completed five full quarters since we recapitalized the partnership," Nunez said, "and our business has stabilized and is generating substantial amounts of cash, a trend ... that appears likely to continue for the foreseeable future."

The company's goal is to reach a leverage ratio over time of debt to EBITDA of less than 3x, and maintain $100 million in minimum liquidity, Nunez said. Once the company reaches that goal, it will re-evaluate and determine whether to strive for a lower ratio, he said. Its current ratio is 3.5x, down from a peak of 5.3x, and NRP wrapped up the quarter with $108 million of liquidity.

CFO and Treasurer Christopher Zolas said the second quarter yielded another "solid quarter of operating results," generating about $19 million more in cash from operations year over year to $54 million in the quarter.

Operating cash flow benefited from $13 million from NRP's coal royalty segment due to "steady performance and strong cash collections," the CFO said.

The coal royalty sector generated $54 million of revenue and was driven by strong thermal and metallurgical coal export markets, he said, which helped tighten the domestic market.

NRP's lessees produced about 4 million tons of met coal on its properties during the quarter and about 3 million tons of thermal coal on properties in Appalachia, the northern Powder River Basin and the Illinois Basin, Zolas said. Met coal made up 70% of NRP's Appalachian coal production and 80% of the coal royalty revenue from the region during the quarter. The company saw strength in thermal coal demand and pricing as well, he said.

All told, the company's lessees generated $38 million in coal royalty revenue in the second quarter, Zolas said, and NRP expects met and thermal coal markets to "remain steady" through the remainder of 2018.

The company reported an adjusted net income of $39.1 million and produced 7 million tons of coal in the second quarter, an increase from $25.9 million in net income and 6.5 million tons produced in the same period a year prior. NRP reported a net income of $26.1 million and produced 6.3 million tons of coal in the first quarter of 2018.