Natural Resource Partners LP (NRP) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Natural Resource Partners L.P. Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Tiffany Sammis, Manager of Investor Relations. Thank you. Please go ahead.

Good morning, and welcome to the Natural Resource Partners' Fourth Quarter 2020 Conference Call. Today's call is being webcast, and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer; Chris Zolas, Chief Financial Officer; and Kevin Craig, Executive Vice President.

Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP's Form 10-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures are included in our second quarter -- in our fourth quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. In addition, I refer you to general resources, public disclosures and commentary for specific questions regarding our soda ash business segment.

Now I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.

Thank you, Tiffany, and good morning, all. NRP continues to operate under CDC guidelines, government-imposed rules and company remote work protocols. Our employees are safe and the partnership is conducting business as usual. The rebound in demand for steel, glass and electricity that began in the third quarter of last year continued into the fourth quarter and the outlook for our coal and soda ash businesses continues to improve.

While the ongoing battle against the COVID-19 pandemic makes it difficult to forecast with a high degree of confidence, we see signs that our business lines could return to pre-pandemic levels during this year. We continue to generate free cash flow and maintain strong liquidity and plan to continue executing on our multiyear strategy to delever and derisk the partnership in spite of the challenges presented by the pandemic.

We generated $89 million of free cash flow over the last 12 months and paid off $46 million of debt. We earned a consolidated return on capital employed before noncash impairments of more than 9%, with the coal segment coming in at almost 13% and our soda ash investment earning 4%.

Our cash flow cushion, which is the free cash flow remaining after paying our private placement debt amortizations and distributions on our common and preferred units, was slightly negative during the period. We ended the quarter with $200 million of liquidity, consisting of $100 million of cash and $100 million of unused borrowing capacity.

International metallurgical coal benchmark prices declined in the fourth quarter as increased demand from a strengthening global economy was more than offset by the negative impact of the China-Australia trade dispute. While prices realized by most of our lessees are not directly tied to international met benchmarks, the benchmarks are an important point of comparison for contract discussions between producers and consumers and are often leading indicators of prices our lessees will receive in the future.

Met benchmark prices have firmed in recent months, albeit with significant volatility and are up 15% since year-end. The global met supply chain has begun to compensate for the disruptions caused by reduced Chinese purchases of Australian coal, and China is beginning to source coal from other countries, including the United States. We view these developments positively and believe our lessees will ultimately benefit from stronger demand and higher prices for met coal in the coming months.

Thermal coal prices continued to rebound in the fourth quarter and the positive trend has continued into the new year; however, note that only about 10% of our consolidated revenues are currently tied to thermal coal prices. You'll recall that the vast majority of our thermal revenues relate to low-cost Illinois Basin mines operated by Foresight Energy.

As part of Foresight's emergence from bankruptcy in the second quarter of last year, we were able to obtain an agreement that guarantees us fixed payment amounts for 2020 and 2021. We are scheduled to receive $42 million of cash from Foresight this coming year, regardless of the price of thermal coal or the volumes Foresight actually produces or sells.

Bottom line for our coal segment, it continues to generate significant free cash flow despite the pandemic due to a combination of high-quality assets and aggressive cost controls. While COVID-19 has presented numerous challenges for us and our lessees, the outlook for our coal business is improving and we are cautiously optimistic for the year ahead.

The performance of our soda ash investment was also encouraging as overall sales volumes maintained the improved levels realized in the third quarter as domestic sales returned to pre-pandemic levels and export prices began to stabilize.

Financially, Ciner Wyoming exceeded the results of the second and third quarters of 2020, resulting from improved demand for soda ash and aggressive spending controls by Ciner's management.

Despite these positive results, we continue to expect that Ciner Wyoming management will not resume regular distributions to its members until they have confidence in the sustainability of the continuing improvement in global soda ash demand. As a reminder, Ciner Wyoming terminated its relationship with ANSAC effective December 31, 2020, and is now responsible for its own export sales and logistics. We are confident that Ciner's management is taking the steps necessary to optimize export sales and logistics for the new year.

As mentioned in our call last quarter, we have been working over the past year to identify potential alternative revenue sources across our large portfolio of land, mineral and timber assets. Our goal is to find opportunities to use our existing surface and subsurface assets for environmentally sustainable projects such as carbon sequestration and renewable energy. While we do not expect these activities to generate significant revenues in the near term, we believe our large ownership footprint of approximately 12 million acres in over 30 states may provide opportunities for us in this regard with minimal capital investment by us.

NRP's demonstrated ability to continue generating free cash flow and paying down debt during the COVID-19 downturn is a testament to the transformative actions taken in recent years to rightsize our business, solidify our capital structure and strengthen liquidity. I would like to express my thanks to all our stakeholders who supported our team in these efforts.

And with that, I'll turn the call over to Chris to cover our financial results.

Thank you, Craig, and good morning, everyone. During the fourth quarter of 2020, we generated $13 million of operating cash flow and $15 million of net income from continuing operations. Our Coal Royalty and Other segment generated $34 million of operating cash flow and $22 million of net income from continuing operations in this period.

Our Q4 results were lower as compared to the prior year quarter, primarily due to the COVID-19 pandemic's impact on the global economy that lowered demand for steel and weakened the market for metallurgical coal. Both sales volumes and prices for our metallurgical coal that was sold by our lessees were lower in the fourth quarter of 2020 compared to the prior year quarter.

In terms of our coal royalty sales mix, metallurgical coal made up approximately 50% of our total coal royalty sales volumes and approximately 60% of our coal royalty revenue during the fourth quarter of 2020. In addition, weaker domestic and export thermal coal markets resulted in lower revenue from our thermal coal properties compared to the prior year quarter. Domestic and export thermal coal markets remain challenged by lower utility and demand due primarily to continued low natural gas prices, the secular shift to renewable energy and the COVID-19 pandemic.

Moving to our second business segment, Soda Ash. Our Soda Ash segment revenues and other income in the fourth quarter of 2020 was lower by $5 million compared to the prior year quarter due to lower soda ash demand and weakened pricing driven by the COVID-19 pandemic.

Our soda ash distribution in the fourth quarter of 2020 was lower by $6 million as compared to the prior year quarter due to the suspension of distributions from Ciner Wyoming. While we're unable to predict the ultimate impact COVID-19 may have on our soda ash business, we remain encouraged by Ciner Wyoming's ability to operate its business safely and effectively amid these uncertain times, and we remain confident in the long-term earnings power of the soda ash business.

Our corporate and financing segment costs declined $1 million and cash used in operations was $6 million lower in the fourth quarter of 2020 compared to the prior year quarter, primarily due to lower interest expense as a result of the $46 million of debt we've repaid over the last 12 months.

Regarding distributions, in November, we paid a quarterly $0.45 per common unit distribution and a quarterly distribution of $7.5 million to our preferred unitholders, 1/2 of which was in cash and 1/2 in kind as required by our bond indenture. Additionally, in February of 2021, we declared and paid a quarterly cash distribution of $0.45 per common unit and a $7.6 million quarterly distribution to our preferred unitholders, also 1/2 in cash and 1/2 in kind.

And with that, I'll turn the call back over to the operator for questions.

(Operator Instructions) I'm showing no questions at this time. I will now turn the call back to the presenters.

Thank you, Operator. I'd like to thank everyone for your participation today and for your support of NRP over the last year, and look forward to working with you as we go forward into 2021. So with that, have a good day, and stay safe.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.