Natural Resource Partners LP

Ladies and gentlemen, thank you for standing by and welcome to the Natural Resource Partners LP second quarter 2020 earnings. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Tiffany Sammis, Manager of Investor Relations. Ma'am, you may begin.

Good morning and welcome to the Natural Resource Partners second 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 of COLE. 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 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 coalesce or detailed market fundamentals. In addition, I refer you to general resources, public disclosures, and commentary for specific questions regarding our SEDASH. Now, I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer.

Thank you, Tiffany. Good morning, all. I hope you and your loved ones are safe and healthy. 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. Our management protection plans and delegations of authorities are in place should we need them. The COVID-19 pandemic has had a significant negative impact on demand for steel, electricity, and glass, which translates to lower demand for the coal and soda ash we produce. Year-to-date coal production in the United States is down 27% compared to 2019, and global soda ash production is down approximately 15% year-over-year. The outlook for coal and soda ash markets remains uncertain as COVID-19 numbers continue to rise across the U.S. However, we believe that our liquidity, free cash flow generation, and the fact that our parent company bonds do not mature until 2025 provide us with the financial flexibility to manage through a prolonged downturn. At the beginning of the pandemic, and in order to best prepare for extreme adverse economic conditions, Our board has decided to reserve cash by suspending our first quarter common distribution and electing to pay in kind one half of our preferred unit distribution. Based on the performance of our businesses since those decisions, we announce today that our board has decided to pay a common distribution and pay in cash the full distribution on our preferred units for the second quarter. In addition, in June, We redeemed in cash the preferred distribution that was paid in kind for the first quarter. Despite the negative economic backdrop, NRP continues to generate cash and pay down debt. We generated $112 million of free cash flow over the last 12 months, paid off $48 million of debt, and added $40 million to common unitholders' equity before non-cash accounting impairments. Our cash flow cushioned which is our free cash flow remaining after paying our private placement debt amortizations and distributions on our common and preferred units was $18 million over the same period. It is likely our cash flow cushion will trend lower in the near future absent a significant improvement in global economic activity. We ended the quarter with $211 million of liquidity consisting of $111 million of cash and $100 million of unused borrowing capacity. We believe that metallurgical and thermal coal prices are near or below operators' costs of production in the United States. While almost all of our lessees are currently operating, including those that had temporarily idled mines at the start of the pandemic, production levels are down and inventories are up. A significant positive development in our coal segment in the second quarter relates to our largest lessee, Foresight Energy. We worked with Foresight to help them develop a plan that enabled them to emerge from bankruptcy, and we entered into lease amendments pursuant to which Foresight agreed to make fixed payments to us totaling $49 million this year and $42 million next year. These fixed payments provide cash flow certainty for NRP at a level greater than had been anticipated as the coal industry manages through difficult market conditions compounded by the COVID-19 pandemic. Beginning in 2022, the pre-bankruptcy provisions of our leases will kick back in, providing economic upside if coal markets improve. Global soda ash prices are down roughly 25% from a year ago, to levels that are below the cost of production of many of the world's synthetic soda ash producers and near the cost of production for some of the natural soda ash producers. Although we've begun to see modest increases in activity in the global auto, container, and construction industries, which should drive increased demand for soda ash, we expect the soda ash industry to face headwinds until the global economy gets back on track. Our investment in Jenner, Wyoming has not been immune to these adverse economic forces, and Jenner announced earlier this week that it is suspending cash distributions until conditions improve. With that said, We believe our facility is competitively positioned as one of the lowest cost producers of soda ash in the world, and we have a positive view of its long-term prospects. In many respects, we now face the most uncertain business environment in decades, but I believe the numerous transformative actions completed in recent years to right-size our business, solidify our capital structure, and build liquidity have positioned NRP to continue deleveraging, and de-risking the partnership by using internally generated cash to pay down debt. And with that, I'll turn the call over to Chris to cover our financial results.