natural resource partners l.p. herold’s pacesetters energy conference september 2005
TRANSCRIPT
Natural Resource Partners L.P.
Herold’s
Pacesetters Energy Conference
September 2005
Forward-Looking Statements
The statements made by representatives of Natural Resource Partners L.P. (“NRP”) during the course of this presentation that are not historical facts are forward-looking statements. Although NRP believes that the assumptions underlying these statements are reasonable, investors are cautioned that such forward-looking statements are inherently uncertain and necessarily involve risks that may affect NRP’s business prospects and performance, causing actual results to differ from those discussed during the presentation.
Such risks and uncertainties include, by way of example and not of limitation: general business and economic conditions; decreases in demand for coal; changes in our lessees’ operating conditions and costs; changes in the level of costs related to environmental protection and operational safety; unanticipated geologic problems; problems related to force majeure; potential labor relations problems; changes in the legislative or regulatory environment; and lessee production cuts.
These and other applicable risks and uncertainties have been described more fully in NRP’s 2004 Annual Report on Form 10-K. NRP undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information or future events.
Overview of Natural Resource Partners
Own and manage coal properties in the three major coal producing regions of the United States:
Appalachia, Illinois Basin and Western US
Lease reserves to experienced mine operators under long-term leases in exchange for royalty payments
Royalty payments based on percentage of sales price or fixed price, with periodic minimum payments
Lessees provide coal to diverse group of utilities, steel companies and industrial users
Executing on Strategy
Acquire / Diversify Reserves
Diversify Operator Base
Explore New Opportunities
Maximize Royalty Revenues
• Pursue acquisition / diversification of reserves• Seek opportunities in all U.S. coal regions
• Identify additional operators• Continue to diversify via acquisitions
• Partner with lessees • Explore new coal & other reserves
• Work with lessees to maximize production• Monitor lessees’ mining plans
StrategyStrategy CommentComment
Evolution Since Natural Resource Partners’ IPO
Reserves:
Annual Production: (2)
Number of Leases:
Number of Lessees:
~1.2 billion tons
30.5 million tons
62
31
~1.8 billion tons (1)
48.4 million tons
160 (3)
60 (3)
Market Capitalization:
Distribution Per Unit:
$454 million
$0.5125 quarterly
$2.05 annualized
$1,552 million (4)
$0.7125 quarterly
$2.85 annualized
Senior Notes: $0 million $206 million
Total Revolver Size:
Cash on Hand
$100 million
$1 million
$175-$300 million (5)
$51 million(3)_______________________(1) As of 12/31/2004.(2) For 2002 and 2004, respectively.(3) As of 6/30/2005.(4) As of 9/15/2005. (5) Following the issuance of senior notes on 7/19/2005, NRP has the full $175 million of capacity available under
its credit facility. NRP also retains the right to increase the size of the credit facility to $300 million without obtaining lender consents.
IPO (10/11/2002)IPO (10/11/2002) CurrentCurrent
Coal Producing Basins in U.S.
States in which NRP has Coal Reserves
Diverse Portfolio of Properties
Northern Powder River Basin
Reserves – 153 mm tons (9%)
Low Sulfur
Illinois Basin
Reserves – 20 mm tons (1%)
Medium and High Sulfur
Appalachia
Reserves – 1,596 mm tons (90%)
Low, Medium, High Sulfur
Note: Reserve information as of December 31, 2004
1.8 billion tons at 12/31/04 (met and steam)
69% low sulfur / 37% compliance
Diverse, Well-Established Lessee Base
• 41.0% of royalty revenues come from top 10 coal producers
• 160 leases with 60 lessees at 6/30/05
• 82.0% of royalty revenues from NRP’s top 10 lessees
• Typical lease 5-10 years with option to extend
• Lessees responsible for all sales, processing and transporting
______________________Note: NRP’s lessees denoted in bold and with shading.Source: National Mining Association Coal Producer Survey 2004.(1) Revenue reported for the period from April 23, 2004 (date of incorporation) to December 31, 2004.
Top Ten U.S. Coal Producers ($ and tons in millions)
FY 2004 FY 2004 Percent of U.S.Company Revenues Production Total Production
Peabody Energy 3,632 193.3 17.4%
Arch Coal 2,077 148.6 13.4%
Kennecott Energy & Coal NA 129.7 11.7%
CONSOL Energy 2,777 67.7 6.1%
Foundation Coal (1) 445 61.4 5.5%
Massey Energy 1,767 42.0 3.8%
North American Coal 111 34.3 3.1%
Kiewit Mining Group 87 30.5 2.7%
Westmoreland Coal 333 29.0 2.6%
TXU Mining NA 24.0 2.2%
Stable and Predictable Historical PerformanceCoal Production
• Royalty structure supports stable revenues
• Diversified sources of royalty revenues
• Downside price protection without limiting upside; minimum royalty payments of $25.4 million at 6/30/05
• Transportation / customer diversity
Coal Royalty Revenues
18% CAGR18% CAGR
31% CAGR31% CAGR
Capital Expenditures
Labor
Employee Benefits
Property Taxes
Transportation / Processing
No Direct Operating Costs or Risks
Operating CostOperating Cost Operating RisksOperating Risks
Reclamation Exposure
Regulatory/Permitting
Competition
Weather
Economy
Active Acquisition History
AcquisitionAcquisition DateDate Reserves (mm)Reserves (mm)
Steelhead Development Company (1) Jul 2005 88
Plum Creek Timber Company Mar 2005 85
BLC Properties Jan 2004 176
East Kentucky Nov 2003 21
PinnOak Jul 2003 79
Alpha Natural Resources Apr 2003 353
El Paso Properties Dec 2002 108
Total 910
____________________(1) On July 12, 2005, we closed on the first phase of this acquisition, which included 47.5 million tons of coal reserves.
We expect to complete the acquisition of the remaining reserves in two steps: one at the beginning of 2006 and the other in the middle of 2006.
(2) Reflects owned reserves of 88 million in total, 38.5 million of which we closed on in July 2005. Does not include 56 million of override reserves.
(2)
Increased Distributions Increased distributions 9 out of 10 quarters since IPO, 39% overall
DistributionsDistributions
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
39% Distribution Increase
39% Distribution Increase
(1)
____________________(1) The initial distribution of $0.4234 is equivalent to a full quarter minimum distribution of $0.5125 prorated for the
period from October 17, 2002, the date of closing of the initial public offering of common units, through December 31, 2002, the end of the quarter.
Significant Growth Potential
Coal royalty business highly fragmented with numerous small operators
Coal companies continue to explore reserve monetization opportunities
Opportunity to explore other qualified minerals outside of coal
Substantial capacity under revolver and good access to capital markets
Proven ability to identify and integrate acquisitions
Financial Overview
31
44 48 51$50
$74
$133
$106
0
20
40
60
80
100
120
140
2002 2003 2004 2005 Guidance*
(fig
ure
s in
mill
ion
s)
Production (mm tons) Coal Royalty Revenue ($ mm)
Strong Financial Performance
___________________* Midpoint of guidance range.
Average Royalty Revenue (per ton): $1.58 $1.66 $2.20 $2.61
Solid Balance Sheet
As Adjusted as of As Adjusted as of June 30, 2005June 30, 2005(1)(1)
Actual as of Actual as of June 30, 2005June 30, 2005
____________________(1) As adjusted for the Steelhead Acquisition and Senior Notes issued on July 2005.
($ in thousands)
Cash and Cash Equivalents $50,760 $47,760
Current Portion of Long-Term Debt $9,350 $9,350
Long-Term Debt
Senior Notes 146,950 196,950
Credit Facility 18,000 -
Total Debt $174,300 $206,300
Partners' Capital 418,739 418,739Total Capitalization $593,039 $625,039
Total Debt / Total Book Capitalization 29.4% 33.0%
Net Debt / Net Book Capitalization 22.8% 27.5%
Subordinated units have many of the same characteristics as common units
NRP (Common) versus NSP (Subordinated)
NRP - Common UnitsNRP - Common Units NSP -Subordinated UnitsNSP -Subordinated Units
When Issued At IPO (October 2002) At IPO (October 2002)
When Publicly Traded October 2002 August 2005
Current Distribution $0.7125 per quarter $0.7125 per quarter
Minimum Distribution $0.5125 per quarter None
Voting Rights to RemoveGeneral Partner
Yes No
Preference on Distributions
At or below $0.5125 per quarter
None
Entitled to Arrearages on Distributions, if any
Yes No
Attractive Tax Structure
Distributions are treated as return of capital
Unit holders are taxed on the income generated by the partnership
Coal royalty revenues on properties held for more than one year are taxed as Section 1231 gains (long term capital gains)
Approximately 60% of the revenue generated is sheltered by depletion deductions
Depletion does not have to be recaptured upon sale of the units
If units are held for more than one year, receive capital gains treatment on the sale
Investment Highlights
Attractive portfolio of long-life, diverse properties
Primarily leases to large operators with diverse customer base
Distribution supported by stable, royalty-based cash flows
No direct exposure to mining operating costs or risks
Well-positioned for growth via coal and mineral acquisitions
Demonstrated ability to grow asset base and distributions
Coal royalty revenues are taxed at capital gains rates
Natural Resource Partners L.P.