Royalties not enough for NRP

DESPITE significant improvement in its coal royalty revenues, a 14% drop in production saw Natural Resource Partners posting a mixed bag of first quarter financials.
Royalties not enough for NRP Royalties not enough for NRP Royalties not enough for NRP Royalties not enough for NRP Royalties not enough for NRP

A Natural Resource Partners property. Courtesy NRLP

Donna Schmidt

Net income for the Texas-based master limited partnership was $US21.6 million, a 13% reduction from the $24.8 million it reported in the first quarter of 2008. Revenues were up 4%, totalling $66.7 million versus $64.1 million year-on-year.

NRP outlined a 7% rise in coal royalty revenues to $52.6 million, citing increased revenues per ton across all regions. Its lessees’ sales contracts rolling over into higher prices led to a per-ton royalty jump of 24% to $4.21, compared to $3.40 during the same period in 2008.

Outside of its Illinois Basin properties, production plummeted, down 14% to 12.5 million tons.

“Appalachia declined approximately 1.6Mt for a multitude of reasons, but mainly due to shut-in production waiting for increases in demand,” the company noted.

“The Northern Powder River Basin declined approximately 500,000t due to more production on federal coal reserves rather than NRP's reserves.”

However, a slight increase in production was seen in the Illinois Basin thanks to the placement of a longwall in the Williamson mine. The longwall was not in place in the first quarter of last year, the company noted, and a panel move in the first quarter of 2009 caused a reduction in normal production levels.

"The first quarter of 2009 encompassed a number of events that impacted our earnings,” NRP president Nick Carter noted.

“In response to current market demand for both steam and metallurgical coal, several of our lessees have temporarily reduced production until economies recover around the globe and coal use rebounds. We believe that our lessees are making the right decision by curtailing production to react to weaker demand."

NRP had a cautious outlook due to the ongoing fall of coal prices and said it expected to see lower realised prices for its non-contracted coal in the remainder of the year.

“Because of significant exposure to metallurgical coal, NRP is feeling the effects of the global reduction in demand for steel,” the company said.

“When the global government stimulus packages begin to work and infrastructure projects increase, demand for steel should improve and could allow metallurgical coal production to resume.”

Carter said NRP’s initial guidance took into consideration both the reduced prices for non-contracted coal and its expectations that some production would be reduced, and as the year progressed it would continue to monitor its lessees’ reactions to the market environment. If appropriate, any updates to its guidance will be issued at the end of the second quarter, he noted.

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