NRP signed a definitive agreement with Cline Group for the reserves related to the Deer Run mine, worth $US255 million, on Thursday.

The company plans to pay for the deal in eight separate transactions, starting with $10 million already funded through its credit facility for 3.3Mt of reserves associated with the initial production from the mine.

Future payments up to 2012 will coincide with milestones in the mine's construction.

Deer Run is located near Hillsboro in Montgomery and Bond counties and the coal reserves are leased to Cline’s Hillsboro Energy affiliate.

Construction of the new longwall mine has already commenced and initial production is expected in 2010, with longwall production to start in 2011.

NRP said the acquisition would start making money for it in the first quarter of 2010 and that royalty income would grow substantially as production at the new mine came online.

NRP expects $12 million in revenue in 2010 and more than $40 million per year of income throughout the mine’s 20-year life.

"With this acquisition, NRP continues its diversification in the Illinois Basin. When this mine is completed and in production, our Illinois Basin production is expected to be approximately 20 million tons per year, up from less than 3 million tons in 2006," NRP president Nick Carter said.

"This is the third acquisition in the Illinois Basin resulting from our relationship with the Cline Group, announced in late 2006. There are several acquisitions anticipated over the next few years that will continue to build our production base in the Illinois Basin."

As part of the deal, the holders of the incentive distribution rights have elected to forgo the distribution associated with the highest splits for the next two quarters. This will result in savings of about $7.35 million each quarter for a total of $14.7 million.

"The general partner and the holders of the IDRs are confident in the future success of both Natural Resource Partners and the new Deer Run mine. Therefore, the IDR holders are willing to forgo these distributions to fund some of the near-term cash needed to acquire these quality reserves in the Illinois Basin," NRP chief executive officer Corbin Robertson Jr. said.

Due to the waiver, the net cost of the acquisition will be $240.7 million.

Carter was also positive on the future of the coal market, stating NRP was beginning to see some improvements in the metallurgical sector.

"Some of our lessees' mines have started producing again and shipments of metallurgical coal are being delivered both domestically and internationally. As approximately 25 per cent of our normal production is from metallurgical coal, this could have a favorable impact on our performance," he said.

As of June 30, NRP held $81 million in cash and had $278 million available under its credit facility, which is not up for renewal until 2012.

Robertson said it was not expected NRP would be required to lower its current distribution for the remainder of the year due to the acquisition.