Natural Resource Partners: A Royalty Play On Coal With A Hidden Asset
Natural Resource Partners: A Royalty Play On Coal With A Hidden Asset
A Diamond In The Coal Rough, But Only On The Watchlist For Now
Summary
Natural Resource Partners is an MLP that owns mineral rights on approximately 13 million acres of land. They collect royalties, primarily from the production of metallurgical coal.
They also have a 49% equity stake in Sisecam Wyoming, a trona ash and soda ash production business.
Management has been working quickly to retire their outstanding 12% preferred shares. Of the original $250M, there is $122M remaining, and I think they will eliminate the rest by the end of the year.
After retiring the preferred shares and existing debt, I expect we will see the 4.6% yield grow rapidly. This will probably take at least a year or two, but they payout could increase significantly, especially if things line up with a commodity bull market.
I haven’t purchased Natural Resource Partners yet, but it is near the top of my watchlist.
Natural Resource Partners NRP 0.00%↑ is a Master Limited Partnership that is a royalty play on the coal industry. Investors buying units of the partnership are essentially buying a piece of two assets. The primary asset is NRP’s mineral rights segment, which is driven by coal royalties that account for approximately 75% of segment revenue. This fluctuates depending on coal prices, but if you are bullish on coal prices, specifically metallurgical coal, over the next couple years, NRP might be an interesting way to play it. Their mineral rights segment is an impressive asset for a company with a market cap of $821M.
The mineral rights segment consists of approximately 13 million acres of mineral interests and other subsurface rights across the United States. If combined in a single tract, our ownership would cover roughly 20,000 square miles. Our ownership provides critical inputs for the manufacturing of steel, electricity and basic building materials, as well as opportunities for carbon sequestration and renewable energy.
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