Natural Resource Partners LP

Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the National Resource Partners LP fourth quarter and full year 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please repress star one. Thank you. Tiffany Samas, Manager of Investor Relations. You may begin.

Thank you. Good morning and welcome to the Natural Resource Partners fourth quarter 2022 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 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 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 Coal West Sea or detailed market fundamentals. In addition, I refer you to CISAJAM 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 Chief Operating Officer.

Thank you, Tiffany, and good morning, everyone. I would like to begin by thanking our employees for their outstanding contributions, executing our strategy to delever and de-risk the partnership. I'd also like to thank our equity investors, bondholders, and banks for your enduring support. And a special word of appreciation is owed to our Board of Directors for its wise guidance and counsel. When we embarked on our new strategy seven years ago, financial position with almost $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. Our future looked bleak. We responded by exercising extraordinary financial discipline to aggressively cut costs, eliminate capital expenditures, and sell off underperforming assets. with an incessant focus on de-levering and de-risking the capital structure. Today, I'm proud to say that the partnership is dramatically healthier and financially stronger than it was seven years ago. We have right-sized the business from four business segments down to two, both of which now earn returns on capital well in excess of their cost of capital. Our operating and interest expenses are each more than 70% lower than they were when we began. And our free cash flow, which had been negative, exceeded a quarter of a billion dollars in 2022, a record for the partnership. Our debt, which had been almost $1.5 billion, had declined more than 80% to $169 million at year end. The financial profile of today's NRP is so remarkably improved from that of seven years ago. that it would be hardly recognizable to anyone who hadn't followed the transformation. I am especially proud that these results have been achieved without the use of sly legal maneuvers, debt forgiveness, or bankruptcy. Let it be known that NRP keeps its promises, pays its debts, and does exactly what it says it will do. We have come a long way, but there is still more work to be done. Our goal remains to retire all permanent debt redeem all of our 12% convertible preferred equity, and eliminate all outstanding warrants. Taken together, these commitments currently total approximately $465 million. If our business continues to generate free cash flow at the current run rate, I hope to reach this goal within two to two and a half years. Once these obligations are eliminated, free cash flow available for common unit holders will increase. most likely in dramatic fashion. And with that, I'd like to summarize our recent operating performance. NRP generated $268 million of free cash flow in 2022, which is the best financial performance in the partnership's history. We paid off $269 million of debt during the year, and our leverage ratio now stands at 0.5 times. We paid out 34 million of common unit holder distributions during the year, which was a 52% increase over the previous year. We have now paid common distributions in every quarter in the 20 years since the partnership went public, except for one quarter during the depths of uncertainty in the COVID-19 pandemic. I would also like to note that in 2022, we made noteworthy progress on our carbon neutral initiatives. with the signing of our first two carbon sequestration leases with both Denberry and Oxy, and our first geothermal energy lease in Texas. While the timing and success of these ventures is uncertain, the assets underlying these leases represent approximately 800 million metric tons of subsurface CO2 storage capacity and have the potential to generate 15 megawatts of green geothermal energy. Our mineral rights segment delivered exceptionally strong performance in 2022 with revenues up over 65% from the previous year. Metallurgical coal prices reached historical highs and were the primary driver of strong segment performance. Numerous factors continue to provide support for MET pricing as the post COVID recovery continues. Supply chain disruptions, labor shortages, and years of underinvestment in new coal production capacity continue to undermine producers' ability to bring new production online to meet demand. While MET prices have pulled back from the peaks reached last year, we continue to believe MET prices will remain well supported for the foreseeable future. Thermal coal prices also reached record highs in 2022, but have declined significantly in recent months due to unusually warm weather in Europe and North America. Thermal prices traded at a premium to MET for much of last year, even pulling lower quality MET coal into thermal markets at times. That situation no longer exists, as thermal coal now sells at significant discounts to MET. While we do not see thermal prices rebounding to last year's record levels, many of the factors that provided support to prices over the last year still exist. Boycotts of Russian coal continue to force European buyers to source coal from other regions, including the U.S. Operators will continue to be burdened by labor shortages, pressure from governments, regulators, activists, and capital providers, which will limit ability to increase thermal production to meet demand. And it appears that China is beginning to relax its three-year ban on Australian coal imports, with the recent approvals for several Chinese companies to buy Australian coal. Additional demand from a Chinese economy emerging from its zero COVID policy should also provide additional support for prices. We expect these factors to keep thermal prices elevated relative to historical levels for the foreseeable future. Turning to our soda ash investment, global soda ash demand has continued to grow due to China's emergence from its zero COVID policy, the continuing secular growth in renewable energy. the electrification of the global auto fleet, and urbanization. Soda ash supply, however, currently remains constrained, as new capacity has not kept pace with demand growth. Constrained supplies combined with energy and raw material input cost inflation drove soda ash prices to record levels in most parts of the world during 2022. Strong sales prices coupled with Syzygium Wyoming's position as one of the world's low-cost producers of Sodash resulted in a 170% increase in Syzygium Wyoming's operating profit compared to the prior year. We continue to believe that the long-term outlook for Sodash remains favorable. Lastly, I'd like to note that a holder of our 12% convertible preferred equity issued a conversion notice to us 47 and a half million of preferred units last month. We had the option of settling preferred unit conversion notices by either paying cash or issuing common units. After considering our financial position, liquidity, and comparing the market value of NRP common units to our estimate of intrinsic value, our board of directors decided to settle this conversion instead of issuing NRP common units. As a result, the outstanding amount of our convertible preferred equity decreased from $250 million to $202.5 million. And with that, I'll turn the call over to Chris to cover our financial results.