Natural Resource Partners LP

Ladies and gentlemen, thank you for standing by and welcome to the Natural Resource Partners LP fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's 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 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 reconciliation to the most directly comparable gap measures are included 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 coalesce or detailed market fundamentals. In addition, I refer you to general resources, public disclosures, and commentary for specific questions regarding our SODASH business segment. Now, I would like to turn the call over to Craig Nunez, our President and

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 multi-year strategy to de-lever and de-risk 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 non-cash 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 Thank you. Thank you. Thank you. 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. Thank you. Thank you. Thank you. 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, Jenner Wyoming exceeded the results of the second and third quarters of 2020, resulting from improved demand for soda ash and aggressive spending controls by Jenner Management. Despite these positive results, we continue to expect that Jenner-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, Jenner-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 gender 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 bias. 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 right size 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 Thank you for joining us. 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 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, Sodash. Our Sodash 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 Sodash demand and weakened pricing driven by the COVID-19 pandemic. Our Sodash 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 Jenner, Wyoming. While we're unable to predict the ultimate impact COVID-19 may have on our Sodash business, we remain encouraged by General 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 Sodash 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 45 cents per common unit distribution and a quarterly distribution of 7.5 million to our preferred unit holders, one half of which was in cash and one half in kind as required by our bond adventure. Additionally, in February of 2021, We declared and paid a quarterly cash distribution of 45 cents per common unit and a 7.6 million quarterly distribution to our preferred unit holders, also one-half in cash and one-half in kind. And with that, I'll turn the call back over to the operator for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. 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.