Natural Resource Partners L.P.

Natural Resource Partners L.P. (NRP), as stated on the partnership website, is a master limited partnership that is principally engaged in the business of owning and managing mineral reserve properties.  NRP primarily owns coal, aggregate and oil and gas reserves across the United States that generate royalty income for the partnership. The partnership does not actively engage in the mining of any of its minerals or natural resources, but rather leases its properties to various operators in exchange for royalty payments. Natural Resource Partners is headquartered in Houston, TX with its operational headquarters in Huntington, WV.”

One recent development was the announcement on December 20, 2012 that NRP had acquired overriding royalty interests on approximately 88,000 net acres located mainly in the liquids rich region of the Marcellus Shale for $30.3 million.  The acreage is currently leased and includes established production as well as significant planned development potential. This acquisition is part of NRP’s efforts to diversify revenues and expand NRP's unconventional oil and gas holdings, which currently include assets located primarily in the Marcellus Shale, Mississippi Lime, and Haynesville Shale plays.

For the third quarter of 2012, NRP reported revenues of $94.2 million, and net income per unit of $0.48. In addition, NRP reported distributable cash flow, a non-GAAP measure, of $65.1 million.  President and COO Nick Carter said, "In spite of a weak coal market, compared to the second quarter 2012, production from NRP's lessees increased in the third quarter by 11% and coal royalty revenues by 12%, as we exceeded our expectations."

Net income to the limited partners totaled $51.0 million compared to a loss of $29.9 million shown in the third quarter 2011, which included an impairment charge of $90.9 million. Excluding the impairment, net income to the limited partners was down $8.2 million from the 2011 third quarter, primarily due to lower coal royalty revenues.

Net income per unit for the third quarter of 2012 was $0.48 compared to a loss of $0.28 per unit reported in 2011. Excluding the impairment in 2011, the net income per unit for the third quarter 2011 was $0.56.

Net income attributable to the limited partners for the first nine months of 2012 was $150.2 million, or $1.42 per unit, compared with $0.66 per unit reported in the third quarter 2011, or $1.50 per unit excluding the impairment.

NRP began paying distributions in the first quarter of 2003, shortly after the initial public offering.  In the early years, the company made small increases almost every quarter, through the second quarter of 2009.  Then, NRP paid $.54 per unit for ten straight quarters, but they have managed a small increase the payout in each of the three calendar years of that ten-quarter period (2009-2011).  Here is the complete annual record of per-unit distributions, rounded to the nearest cent:

2003 $1.00

2004 $1.19

2005 $1.40

2006 $1.61

2007 $1.83

2008 $2.02

2009 $2.15

2010 $2.16

2011 $2.17

2012 $2.20

The most recent quarterly distribution was $0.55 per unit was on November 14, 2012.

According to the third quarter earnings release, assets as of September 30, 2012 were $1,713,678,000. Liabilities were $1,096,846,000. Total partners’ capital was $616,832,000. Total units outstanding were 106,027,836.  Book value was $5.82.

I own units of NRP in a retirement income account. The first purchase was made in May, 2011 at $31.36 per unit. The slow, steady decline of NRP units since then reflects the continued downturn in the coal industry. I believe NRP is well-managed and I have not been tempted to sell at these depressed prices. For me, at present NRP is a solid “hold” because I do not plan to buy more units and the December 27 closing price of $17.78 is well below the $31.88 price at which I would consider selling some shares. I believe NRP will weather the storm in the coal industry, so I am holding my units.

This is a classic example of a stock which may be a great value or a value “trap.” Time will tell. At the current $.55 quarterly distribution, the annual distribution rate is $2.20. At the December 27 closing price of $17.78, the yield is 12.37%. 

Do your own research and due diligence.  This is not a recommendation to buy but rather a suggestion for a stock to study for possible inclusion in a dividend portfolio.