Nrp mar13 mlppresentation

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Nrp mar13 mlppresentation

  1. 1. GHS 1x1 Chicago Infrastructure & MLP DayChicagoMarch 14, 2013
  2. 2. Forward Looking StatementsThe 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 thesestatements are reasonable, investors are cautioned that such forward-lookingstatements are inherently uncertain and necessarily involve risks that may affectNRP’s business prospects and performance, causing actual results to differ fromthose discussed during the presentation.Such risks and uncertainties include, by way of example and not of limitation: allfinancial projections; general business and economic conditions; decreases indemand for trona, soda ash, coal, aggregates, and oil & gas; changes in our lessees’operating conditions and costs; operating costs and risks associated with the tronamining business; changes in the level of costs related to environmental protectionand operational safety; unanticipated geologic problems; problems related to forcemajeure; potential labor relations problems; changes in the legislative or regulatoryenvironment; and lessee production cuts.These and other applicable risks and uncertainties have been described more fully inNRP’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q.NRP undertakes no obligation to publicly update any forward-looking statements,whether as a result of new information or future events. 2
  3. 3. NRP Overview 3
  4. 4. Business Overview Revenues from NRP’s Assets (2012)• Own, manage and lease mineral properties in the U.S. – 2.4 billion tons of proven and probable coal reserves in three major coal producing regions – 500 million tons of aggregate reserves – Oil and gas• Lease reserves to experienced mine operators under long-term leases in exchange for royalty payment – >percentage of gross sales price or fixed price per ton – periodic minimum payments NRP Revenues (2012)• Own and lease infrastructure assets including transportation, handling and processing facilities and receive throughput fees• Expect 2013 revenue guidance in range of $330 million - $375 million• Publicly traded on NYSE (“NRP”) with market cap of $2.4 billion(1)(1) Market data as of March 11, 2013. Unit price of $21.99 4
  5. 5. New Revenue Streams Through Disciplined Acquisition Strategy• 32% of 2012 revenues from assets other than coal royalty revenues, a significant increase from only 10% in 2005• Added new asset types to portfolio for complementary sources of revenue 2005 Revenues 2012 Revenues Coal Oil & Gas Oil & Gas Other 3% Infrastructure, 2% 4% Other ORRI & Mins Aggregates 8% 4% 2% Steam - NPRB Met Coal 5% 30% Met Coal Coal Steam - ILB 28% Infrastructure, 3% ORRI & Mins 19% Steam - NPRB 2% Steam - APP 54% Steam - ILB Steam - APP 13% 23% Total Revenue = $159.1 million Total Revenue = $379.1 million 5
  6. 6. Acquisition of Trona / Soda Ash Operations and Assets 6
  7. 7. Transaction• NRP acquired Anadarko Petroleum Corporation’s (APC) ~49% equity interest in OCI Wyoming, consisting of trona ore mining operations and a soda ash refinery located in the Green River Basin, Wyoming• NRP acquired APC’s interest for a price of $292.5 million plus an earn-out of up to a net present value of $50 million based on OCI performance in 2013, 2014 and 2015• Transaction financed through the following: – $200 million 3-year term loan – $76.5 million from equity issuance and GP contribution – $16 million cash• Immediately accretive to both earnings and cash flow 7
  8. 8. Strategic Rationale• Further diversification of NRP’s revenue – Soda ash revenue tied to broad and diverse set of industrial markets – Favorable supply / demand fundamentals – Trona mining and processing operations not a focus of environmental or geopolitical concerns• Stable to increasing distributions and income based on long-life assets 2009 2010 2011 2012 2013E Cash received on acquired interests, $mm 27.5 20.5 25.2 35.0 ~35-40 Revenue derived from acquired interests, $mm 38.0 33.8 55.0 N/A N/A – Increasing income and annual distribution potential – Substantial trona ore reserves: 60+ year reserve life – Cash flow accretion to NRP of $0.18 to $0.22 per unit in 2013• OCI Partnership in good financial condition – Invested over past 15 years for expansion, efficiency, and sustainability (funded with cash from operations) raising production capacity – Rated production capacity of 3.25 million tons annually – Balance sheet with room for levering future expansion capex 8
  9. 9. 2012 Diversity of Revenue Pro Forma for Acquisition 2012 Revenues 2012 Revenues Pro Forma for OCI 9
  10. 10. Overview of NRP’s Coal Business• Diversified platform across the coal industry• 5th largest owner of coal reserves in the U.S. – 2.4 billion tons• Strategically located in Appalachia, Illinois Basin, Western U.S. Northern Appalachia Reserves 519 mm tons• Since 2005 – acquisitions focused on Illinois Basin steam coal and Production 10.5 mm tons metallurgical coal % Metallurgical 2% % Underground 94%• 2012 coal production of 54.4 mm tons and coal royalty revenues of $260.7 Key Lessees Alliance Resource million Partners, Arch Coal, MetInvest Northern Powder River BasinReserves 100 mm tonsProduction 2.4 mm tons Central Appalachia% Metallurgical 0% Reserves 1,262 mm tons% Underground 0% Production 26.1 mm tonsKey Lessees Westmoreland Coal % Metallurgical 31% % Underground 82% Illinois Basin Key Lessees Alpha NaturalReserves 367 mm tons Resources, ArchProduction 11.3 mm tons Coal, Mechel, Patriot% Metallurgical 0% Southern Appalachia% Underground 96% Reserves 121 mm tonsKey Lessees Foresight Energy, Knight Hawk Coal Production 3.7 mm tons Gulf Coast % Metallurgical 34% States in which NRP generates coal royalty Reserves 5 mm tons % Underground 79% revenues/overrides Key Lessees Cliffs Natural Production 0.5 mm tons Resources % Metallurgical 4% % Underground 0% Key Lessees Dolett Hills Mining 10
  11. 11. NRP – Significant Metallurgical Exposure• 20-25% of all the metallurgical coal U.S. Coal Production (5-Year Average) produced in the U.S. is produced from NRP properties – In 2006, it was as high as 30%• Historically metallurgical coal has made up a significant portion of NRP’s coal royalty revenue – 22% to 37% of production – 29% to 47% of coal royalty revenues NRP’s % of U.S. Met Production (5-Year Average) – 2012- 32% of production and 44% of coal royalty revenues• 20 lessees currently produce metallurgical coal from NRP properties• Increases in metallurgical demand or prices can have a profound impact on NRP 11
  12. 12. Growing Infrastructure Business• Own preparation plants, rail load-outs and beltline structures for both coal and aggregates• Currently own 11 coal assets and 1 aggregate plant• Fees received based on • % of the gross selling price or • Fixed fee per ton of throughput• Working to expand business 12
  13. 13. Overview of NRP’s Aggregates Business • 500 million tons of aggregates in 13 states • Currently 2% of revenues, but growing • Invested ~ $138 million since 2006 to acquire assets excluding BRP White County (Mar 2010) BRP Hi-Crush ORRI (Nov 2012) Limestone (Jun DuPont (Jan 2007) Frac Sand 2010) Sand and GravelNorthern California (Apr 2010)Silica Putnam County (Apr 2010) Limestone Livingston County (Feb 2011) Limestone Rockmart (Jun 2010) Slate States in which NRP generates BRP aggregate revenues/overrides (Jun Date of acquisition in parenthesis 2010) BRP Tyler, TX (Jun 2011) (Jun Frac Sand 2010) Wise County (Jul 2009) McMinn County (Mar 2011) Limestone Limestone 13
  14. 14. Overview of NRP’s Oil and Gas Business• Own, manage and lease oil and gas mineral Oil and Gas Revenues from NRP’s Assets properties in the U.S. – Over 494,000 net leased oil, gas and CBM acres – More than 1,000 producing wells – Additional un-leased mineral interests throughout United States – Interest types include fee mineral ownership, overriding royalty ownership• Since Dec 2011, acquired 19,200 net mineral acres in the Mississippian Lime oil play in Oklahoma for ~$64 million – Currently leased to several active operators States in which NRP generates – Continuing development through horizontal drilling oil and gas revenues• In December 2012 NRP completed a $30.3 million acquisition of Marcellus Shale override royalty interest – Includes an average royalty of 3.5% on approximately 88,000 net acres – Currently leased and includes established production as well as significant additional planned development potential• Continuing to lease BRP oil and gas acreage• Actively seeking to grow oil and gas portfolio through acquisitions – Minerals, royalties, ORRI, Net Profits Interest acquisitions – Provide development capital to operators in exchange for non-cost bearing interest• Oil and gas royalties currently only 3% of revenues, but growing as further development occurs on NRP properties 14
  15. 15. Platform for Additional Growth -BRP Mineral Venture - ~ 9 mm acres •Formed venture with International Paper June 2010 - BRP •Own and manage ~9.1 million acres of mineral rights previously held by IP •NRP paid $42.5 million and has annual cumulative preferred distribution of $4.25 MM and 51% of any excess income •Royalty based model similar to NRP other assets •NRP has received distributions with regard to: •2012 - $6.0 million •2011 - $6.9 million •2010 - $2.5 million (7 months) Current Income Development Oil and gas royalties √ √ ~75% of properties are located in Coal royalties √ √ the Gulf Coast region with next Aggregate royalties √ √ largest region the Pacific Cell tower royalties √ Northwest Coal bed methane √ Geothermal √ Water rights √ Precious metals √ Industrial minerals √ 15
  16. 16. Growth and Diversification of Revenues 16
  17. 17. Paid to Wait for Market Turnaround• Current quarterly distribution - $0.55 per unit• Large cash balance to help protect distribution in weak markets 17
  18. 18. Unique Tax Attributes for Individuals• Portion of current income deferred due to depletion, depreciation• Current income predominantly taxed at Section 1231 – capital gains rates• At sale of units - very little recapture of depreciation and depletion• If units are held for more than one year, majority of all income generated by the partnership is taxed at capital gains rates 18
  19. 19. Poised for Growth• Potential for higher coal production – NRP’s lessees produced 54.4 million tons in 2012 – NRP forecasts 2013 coal production of 48 million tons to 56 million tons• Growth in infrastructure and transportation – Increasing throughput from rising coal tonnage in ILB – New ILB infrastructure assets – Sugar Camp – New infrastructure assets in aggregates• Growth in oil and gas royalties due to recent acquisitions – Hired team in 2011 to evaluate acquisitions and expanding development on existing leases – Currently only 3% of revenues, but growing as further development occurs on NRP properties• Increased aggregates and industrial minerals platform – Since 2006 acquired 10 aggregates properties for ~$138 million plus 1 infrastructure asset for $6 million – Combination of producing and greenfield projects – January 2013 acquired interest in OCI• Mineral venture with International Paper (BRP LLC) – Actively developing diverse portfolio of mineral rights in 31 states 19
  20. 20. Appendix 20
  21. 21. Trona/Soda Ash OCI Info, Fundamentals and Markets 21
  22. 22. Key Operating Metrics – OCI Wyoming• Sales and Pricing: – Historical annual sales of refined soda ash: 2.3-2.5 mm tons (approximately 2/3rds exported) – 90% of export sales arranged by ANSAC (three member co-op: OCI, FMC, and Tata); ANSAC is the largest soda ash exporter at ~4 mm metric tons of natural soda ash – OCI negotiates pricing with domestic companies each October for following year (customers have rolling 1-yr contract terms)• Currently mining 2 trona beds: – #24 is 11.3’ thick, contains 89.6% trona, at a depth of 913’ – #25 is 10.2’ thick, contains 88.6% trona, at a depth of 796’ – Room-and-pillar mining using continuous miners• Natural soda ash has competitive cost advantage over synthetic manufacturing – Natural soda ash cash costs are less than half the cost of synthetics 22
  23. 23. Pro Forma Ownership Structure and Distributions OCI Chemical NRP Operating Corporation OCI Wyoming Co. 100% 1% Limited Partner Priority Return $14.7 mm OCI Wyoming NRP Trona LLC Holding Co. OCI Wyoming L.P.• NRP is due a preferred return of $4.7 million per year from OCI Wyoming Co.(accruing interest at 9% per annum in the event not paid)• In addition, NRP receives 20% of distributions (net of tax) to OCI Wyoming Co. in excess of the preferred return• Finally, NRP is due 48.51% of any distributions from OCI Wyoming L.P. after priority return is paid 23
  24. 24. OCI Company Ltd. (Korean Parent)• Headquartered in Seoul, Korea, OCI Company Ltd. (OCI Korea) is a global company with a market capitalization of ~$4.5 billion• OCI Korea’s product portfolio spans the fields of inorganic chemicals, petro and coal chemicals, fine chemicals, renewable energy and insulation materials• OCI is today the world’s fifth-largest producer of soda ash, having acquired the Green River soda ash operations from Rhone Poulenc in 1996• OCI Enterprises, Inc., based in Atlanta, GA, is the North American subsidiary of OCI Korea 24
  25. 25. Trona / Soda Ash Fundamentals• Trona ore is a naturally occurring form of soda ash, used worldwide in manufacturing a variety of consumer products, primarily including glass, chemicals, soap, and paper• Soda ash can also be produced synthetically from limestone, and even though synthetic capacity is growing, it comes at a significantly higher cost differential• World demand for soda ash has been growing for the past three decades, driven particularly by Asia, Middle East and Africa, while U.S. demand has generally been stable at 6-7 million tons annually 2011 US Consumers of Soda Ash Flue Gas Desulfurization 3% Distributors Other 5% 3% Water Treatment 1% Pulp and Paper 2% Soaps and Detergents 8% Flat Glass 19% Glass Container Glass 48% 24% Chemicals 30% Fiber and Other Glass 5% Source: USGS 25
  26. 26. Global Production Capacity and Demand 2011 2012 Est. 2013 Fcst. TOTAL TOTAL TOTALNameplate Capacity 63,000 65,000 68,000Effective Capacity 58,000 60,000 64,000Production Estimate 52,000 53,000 56,000Demand 52,000 53,000 55,000Year-over-Year Growth 7.7% 1.9% 3.8%Capacity Utilization 89.7% 88.3% 87.5%• Growing global demand for soda ash• Demand increased substantially in 2011 but slowed to an estimated 1.9% in 2012, with an increase of 3.8% projected for 2013• Capacity additions and production levels continue to outpace demand, though capacity utilization remains relatively high at 87.5%Source: Santini & Associates, Inc. 26
  27. 27. Competitive Landscape• Five producers of natural soda ash in the U.S., four located in Green River, Wyoming and one, Searles Valley, in California• OCI Wyoming produces approximately 20% of the total U. S. production of natural soda ash OCI 20% FMC 32% SVM 8% Solvay 19% General 21% 27
  28. 28. U.S. Production and Demand• U.S. domestic demand and supply is fairly stable with almost 100% capacity utilization• The export market is a key profit growth opportunity for U.S. producers• Prices increased at a CAGR of 7% from 2007 through 2011 WY Historical Soda Ash Output 15.0 134 150 130 122 116 12.0 104 120 11.1 11.3 10.6 10.7 MM Tons/yr 9.0 90 $ / Ton 9.3 6.0 60 3.0 30 0.0 0 2007 2008 2009 2010 2011 Production Price Source: USGS: 2011 Minerals Yearbook, November 2012 28
  29. 29. Financing of Transaction & Liquidity• Purchase Price of $292.5 million, plus an earn-out of up to $50 million based on OCI performance criteria for 2013, 2014, and 2015• Financing: – $200 million funded with new 3-year term loan – $76.5 million in equity issued to Sponsors at closing, including a $1.5 million general partner contribution – $16 million cash• Liquidity following transaction - $285 million – Adjusted Cash at 12/31/12 of $133 million following cash used for transaction – Available on credit facility - $152 million 29
  30. 30. Term Loan ComponentBorrower:  NRP (Operating LLC)Guarantors:  All existing and future Material SubsidiariesPurpose:  Partial funding of OCI Wyoming AcquisitionSize / Tenor / Type:  $200 mm / 3-Year / Senior Unsecured Term Loan FacilityInterest Rate:  LIBOR plus 200 bpsFinancial Covenants:  Interest Coverage ≥ 3.5x  Leverage Ratio ≤ 4.0x  Year 1: $10 mm due January 2014Amortization:  Year 2: $20 mm due January 2015  Year 3: $170 mm due January 2016 30
  31. 31. Equity Component• Raised $76.5 million• Issued $75 million in private placement equity to affiliates of NRP’s general partner: – Corbin J. Robertson, Jr, Chairman and CEO of NRP, and members of his family – Chris Cline – S. Reed Morian – W. W. Scott, Jr. – 3,784,572 units issued at a discount rate of 4.5% to the volume- weighted average price for the prior 15 trading days.• NRP (GP) L.P., the general partner of Natural Resource Partners L.P., contributed $1.5 million to maintain its 2% interest in Natural Resource Partners L.P. 31
  32. 32. Conclusions• The acquisition represents a significant step in NRP’s efforts to diversify its portfolio of revenues• OCI has a long production and sales history in a relatively stable, slow growth market – OCI is a low cost producer with high quality reserves that have an estimated life in excess of 60 years – Natural soda ash production has competitive cost advantages over synthetic soda ash• Investment is immediately accretive under the financing structure, adding cash flow of ~$0.18 - $0.22 per unit in 2013 32
  33. 33. Coal Market Outlook 33
  34. 34. Coal – Fastest Growing Fossil Fuel in 2011• 2011 - Global primary energy consumption Global Energy Consumption (2011 vs. 2010) increased 2.5% Renewables Coal Natural Gas Hydro Oil Nuclear – Coal was fastest growing fossil fuel, up 5.4% 17.7% – Renewables fastest growing fuel, but only accounts for 1.6% of global energy consumption 5.4% 2.2% 1.6%• 30.3% - Coal’s share of world energy 0.7% consumption in 2011 - highest since 1969 (4.3%)• Asia-Pacific is largest energy consumer Global Energy Consumption – 2011 (million tonnes oil equivalent) – 39.1% of global energy consumption 33.1% – 68.6% of global coal consumption 30.3%• 12th consecutive year oil’s share of global 23.7% energy consumption has declined – lowest since 1965 6.4% 4.9% 1.6% Oil Coal Natural Gas Hydro Nuclear RenewablesSource: BP Statistical Review of World Energy June 2012. 34
  35. 35. Global Coal Consumption Continues to Increase • Three largest global consumers of coal in Global Coal Consumption 2011 (million tonnes oil equivalent) – China – 49% 2,553 – U.S. – 14% – India – 8% 1,883 • Global coal consumption increased 56% between 2001 and 2011 1,160 – China increased ~155% – India increased ~104% 593 604 534 519 530 499 • Global coal consumption increased 19% 82 92 100 19 21 30 6 9 9 between 2006 and 2011 North America South & Europe & Middle East Africa Asia Pacific Central Eurasia America • U.S. coal reserves make up 28% of the 2001 2008 2011 world’s total coal reservesSource: BP Statistical Review of World Energy June 2012. 35
  36. 36. U.S. Steam Coal Market • Coal continues to be a low-cost, reliable, and abundant source of fuel • Over the past 10 years, coal-fired power plants produced ~40-50% of all U.S. electric power generation • Market share pressured by regulatory environment and gas competition, but expected >40% in long-term • Increasingly, U.S. producers focused on exports, capitalize on growing global demand U.S. Electric Power Generation by Fuel Type U.S. Coal Exports (billion kilowatthours) (million short tons) 60Fuel Type 2009A 2010A 2011A 2012E 2015E 2020E 2025E 50Coal 1,739 1,829 1,777 1,689 1,562 1,634 1,741 40Natural Gas 837 895 916 969 1,024 994 1,002Nuclear 799 807 786 813 830 887 917 30 (1)Renewables 386 393 469 445 506 547 582 20 (2)Other 31 31 22 22 20 21 23Total 3,793 3,955 3,970 3,938 3,942 4,083 4,264 10Coal as % of Total 45.9% 46.3% 44.8% 42.9% 39.6% 40.0% 40.8% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total U.S. Coal Exports (mt): 48.7 39.6 43.0 48.0 49.9 49.6 59.2 81.5 59.1 81.7 107.3 Europe Asia North America South America Africa Australia and OceaniaSource: EIA.(1) Renewables include conventional hydroelectric, geothermal, wood, wood waste, biogenic municipal waste, other biomass, solar thermal, photovoltaics and wind power. 36(2) Other includes petroleum, non-biogenic municipal waste, pumped storage, renewables and distributed generation.
  37. 37. Metallurgical Coal Market Global Steel Production U.S. Met Coal Exports• Monthly output in March 2012 was the • Met exports for 2012 down 1% from 2011 highest ever • Met exports for 2012 increased over 200%• 2012 global steel production rose 1% over since 2002 same period in 2012 including a 3% increase in the U.S. • U.S. continues to evolve from global “swing supplier” to market leader• NRP expects production to continue to grow as economies around the globe improve(millions of metric tons) (millions of short tons)Source: World Steel. Source: EIA. 37

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