Natural Resource Partners (NRP)
A royalty on coal production, trading at ~4x free cash flow (LTM)
Price: $87.75
Fully-Diluted Shares Outstanding: 13.05M
Market Cap: $1.15B
Enterprise Value: $1.36B
Natural Resource Partners (NRP) one of the largest mineral rights owners in the U.S., earns royalties from extracted natural resources on its 13 million acreage and other revenue sources (70% of revenues are from metallurgical coal, which is used in the production of steel). Despite its commodity associations, the company is predictably and consistently profitable (50% FCF margins). Here is the free cash flow from 2017 to the last twelve months.
This a very high ROIC business model, they take a royalty on the sales of coal producers assume none of the risks, and have minimum payment obligations, which has led to decades of profitability. The market cap is currently $1.15 billion, providing investors with a 24.7% free cash flow yield. Management owns roughly 29% of the company and has paid off a mixture of debt, warrants, and preferreds over the last several years.
Per their last annual report: “2015 marked a watershed event in the history of the Partnership. Falling commodity prices and high debt levels pushed our financial capacity to the brink. We had nearly $1.5 billion of debt, representing more than two-thirds of our capital structure. Our bonds were trading at 65 cents on the dollar, and our free cash flow was negative. We could no longer rely on external sources to refinance maturing debt. In response, we embarked on a strategy to de-lever and de-risk the Partnership.” NRP does not deliver quarterly guidance, and they have been cogent about their long-term plan of returning capital to shareholders. NRP is an MLP, so dividends will be distributed, yielding 20%+ at today’s price.
Key properties:
Carter Roag – Operated by Affinity Coal, a Metinvest subsidiary, this Northern Appalachian mine has produced high-quality met coal for decades. Future expansion plans aim to increase capacity in the surrounding reserves.
Kepler Coal Plant Property – Operated by Alpha Metallurgical Resources, this property is part of Alpha's key capital expenditure projects. The ongoing project aims to enhance efficiency and capacity, with plans to boost coal production by over 160,000 tons annually.
Elk Creek – Operated by Ramaco Royalty Company, Elk Creek is noted for having the lowest cash cost per ton of coal in the nation.
Other valuable sources:
NRP – holds a 49% stake in a soda ash mine in Wyoming's Powder River Basin, one of only three natural soda ash locations worldwide. This mine is essential for various industries, including construction and EV batteries. The other 51% of the mine recently sold for $500 million, half of NRP's current market cap.
Has extensive mineral reserves, estimated to last 48 years based on 2020 reserve data and current production rates. These reserves are crucial for steel production and low-cost energy supply.
Can also monetize its land through timber rights, carbon offset credits, and leasing for renewable energy projects, including solar, wind, and geothermal. Additionally, NRP is exploring a new business in carbon capture and storage, funded by companies like Occidental Petroleum. This venture is supported by government incentives and has significant growth potential.
Notable investors:
John Huber (Saber Capital) and Bryan Lawrence (Oakcliff Capital) have taken significant positions in NRP, and it wouldn’t be surprising if more investors followed suit. The company is on the goal line of a ninety-yard drive, and shareholders will soon be rewarded.
Recommended reading/listening:
I love this company. Been my top position for almost two years now, still surprised at how under followed it is. The massive dividend after balance sheet cleanup will re-rate this, if not I’ll be happy to clip 20% coupon.
Agreed